'Sweet spot' for Lloyds as profits double despite 'challenging' trading
Lloyds Banking Group has doubled its profit in the first three months of the year amid a "sweet spot" thanks to the economy's resilience since the Brexit vote.
The lender, which is now less than 2% owned by the Government, posted a better-than-expected set of first-quarter figures, with pre-tax profits surging to £1.3 billion, up from £654 million a year earlier.
This came despite the bank being forced to set aside £350 million to cover mis-sold payment protection insurance (PPI) claims and £100 million to cover compensation for victims of fraud by former HBOS staff.
On an underlying basis, the group saw a more muted 1% rise in profits to £2.08 billion, but this defied expectations for a decline as it said the economy was still holding up well.
Lloyds - a bellwether of the economy, given its position as the biggest mortgage lender - said growth remained strong and is expected to continue at a similar rate to 2016, at around 2%.
Richard Hunter, head of research at Wilson King Investment Management, said the bank was in the middle of a "sweet spot" caused by the robust economy.
But experts flagged concerns over the bank's exposure to a downturn, with fears mounting that surging inflation caused by the Brexit-hit pound will bring an end to consumer spending-driven growth.
The first-quarter earnings mark another step forward in the bank's recovery story as it edges closer to being fully returned to private hands in the coming months, with the Government stake being cut to below 2% earlier this month.
The Government announced last week that it had already recouped all of the £20.3 billion of taxpayer cash used to bail out Lloyds at the height of the financial crisis.
Lloyds chief executive Antonio Horta-Osorio said it was a "moment of huge pride for all of us at Lloyds".
He added that the results showed the bank's "ability to respond to a challenging operating environment".
He brushed aside fears of rising consumer debt, insisting underlying household borrowing was still less than it was before the financial crisis, with most of the recent growth coming from student loans and car finance.
The group also posted a surprisingly robust net interest margin, in spite of record low interest rates, which has been hammering returns in the retail banking sector in recent years.
But the results show it is still yet to shake off past scandals, with the previously announced extra PPI charge taking its total bill for the saga to £17.3 billion.
On the HBOS payout, Mr Horta-Osorio said the group was determined that victims of the fraud would be "fairly, swiftly and appropriately compensated".
Shares in Lloyds rose 3% after the first-quarter figures.
Mr Hunter said: "For the time being, the resilience of the UK economy is a boon for Lloyds, even though any retrenchment could threaten the situation."
Neil Wilson, senior market analyst at ETX Capital, hailed Lloyds as the "star of the banking sector".
"But we must factor some downside risks, particularly around credit risks - its increased exposure to the UK credit card market through the acquisition of MBNA is a risk for sure," he added.