Lloyds profit nearly doubles to £2.3bn as higher rates lift income before Budget levy

Lloyds profit almost doubles

Lloyds Banking Group, which owns the Bank of Scotland and Scottish Widows, posted a pre-tax profit of £2.3bn for the third quarter, against £1.2bn in the same period a year earlier. The prior-year figure was weighed down by an extra £800m provision for the UK watchdog's motor finance compensation scheme, which covers people mis-sold car loans. That scheme is currently on hold while legal challenges play out in court. Excluding the provision, earnings still rose year on year, because the group took in more income over the quarter.

Third quarter, year earlier1.2

Third quarter, current2.3

Third quarter, year earlier

1.2 £bn

Third quarter, current

2.3 £bn

Data from the article text

Underlying net interest income, the gap between what lenders earn on loans and what they pay on deposits, climbed 10% year on year. Nick Sherrard, managing director of Edinburgh-based consultancy Label Sessions, said the figures pointed to a bank running efficiently and in line with guidance.

“Lloyds' income is growing, costs are tightly controlled, credit quality remains stable, and capital generation is strong.”

Budget levy and its cost to banks

Chancellor John Healey announced the measure in his first Budget statement on Wednesday, 28 October. Banks will pay a temporary extra 3% on their corporation tax surcharge from January, which doubles the current rate. The Office for Budget Responsibility expects the change to bring in an extra £1.5bn for the Treasury over the 15 months it runs. Healey described the levy as a request for banks to contribute more to support ordinary households, with the money set to help fund household energy bill support. Lloyds, NatWest and Barclays rose between 1% and 2% after Healey set the temporary bank profit surcharge at 6%, lower than some had feared.

Richard Hunter, head of markets at Interactive Investor, offered a similar view of the results.

“Lloyds has enjoyed a bumper quarter which puts the bank in prime position to meet its full-year targets.”

Europe's banks and wider earnings

Five large European lenders, UBS, Santander, Deutsche Bank, BNP Paribas and Standard Chartered, reported third-quarter results on Wednesday, 28 October, with mixed outcomes. Santander's shares fell 5.6% despite a business model that benefits from higher rates, partly because its results were messier than usual after recent deals. Deutsche Bank's shares rose even though its fixed income and currencies revenue dipped 3% year on year. BNP Paribas reported a 50% jump in revenue from trading equities and lending to hedge funds. UBS's wealth management arm added $55bn in net new assets, and Standard Chartered's affluent clients brought in $20bn, after which the bank upgraded its full-year earnings forecast. Analysts expect MSCI Europe constituents to post a 23% rise in third-quarter profits from a year earlier, just shy of the 24% figure for the US.

AB InBev and rising costs

Anheuser-Busch InBev met its third-quarter profit forecasts, with organic operating profit up 3.9% and revenues ahead of expectations. Higher commodity, distribution and transport costs, including energy and diesel, cut into gains in the US, Europe and South Africa. The operating margin narrowed by 34 basis points to 36.1%, and cost of sales reached $7.21bn, the highest since 2023. Sales in China fell 16.8%, even as the company recorded high volumes in 15 markets. Diesel prices reached record highs because of the Iran war, while aluminium costs were already elevated due to US tariffs. P&G, Philip Morris International and Coca-Cola have also flagged rising cost pressures.

Markets on Wednesday and ahead of the ECB

European shares were subdued on Wednesday, 28 October, as disappointing earnings and higher oil prices weighed on sentiment before the European Central Bank's policy decision on Thursday, 29 October. Bank of Ireland rose almost 4% after upgrading its net interest income guidance. The FTSE 100 ended 0.1% higher, while the Stoxx 600 rose 0.07% to 644.14 points. Entain and Evoke rose 3.6% and 3.7% after machine games duty was raised to 25% from 20%. GSK fell 4.8% and Unilever fell 2.1% after their results failed to impress investors.