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Latest set of results could represent turning point for the sector
Thursday 04 May 2017 Author: David Stevenson

The days of banks having tarnished reputations is far from over but there are encouraging signs that some of the old retail investor favourites are getting back on form.

Lloyds Banking (LLOY) leads the pack as its first quarter earnings beat market expectations. Analysts suggested they might upgrade full year profit forecasts by as much as 7% following the statement.

Could Lloyds deliver consistent dividend growth once again?

The bank posted a £2.08bn underlying profit, and this is leading to increased confidence it can return to consistent dividend growth.

Investec forecasts a 4.5p per share dividend for the 2017 financial year, equating to a healthy 6.5% prospective yield.

Investment bank Jefferies says that Lloyds’ net interest income has surpassed expectations for the first time ‘in ages’.

The bank’s net interest margin (NIM), the difference between income from lending and the cost of funding and a key indicator of a bank’s profitability, is up to 2.8% from 2.68% in the final quarter of 2016.


RBS returns to profit

Another benefactor of state aid, the Royal Bank of Scotland (RBS) is not faring as well. The bank is still 72% owned by the Government, while Lloyds could be fully privatised soon.

RBS’ recent results show it is finally back in the black, having turned a £938m loss this time last year to a £259m profit in the first quarter of 2017.

The bank’s NIM improved to 2.24% from 2.19% and the bank further reduced its cost to income ratio to 76.1%.

However, the management also warn profit will be down for the next quarter due to a slow start in its investment banking arm.

RBS is in no position to start paying dividends any time soon so while the bank is finally moving in the right direction it has a lot of ground to make up on Lloyds.

At a headline level Barclays (BARC) exceeded analyst expectations in the first three months of 2017 with profit doubling compared to the first quarter of last year. However this excludes a big hit for selling its Africa unit. The bank incurred a £658m post-tax cost on the sale of the business.

Unfortunately for Barclays, investors seem more concerned about its chief Jes Staley’s reputation as he is being investigated for his attempts to identify a whistleblower.

The bank slashed its dividend by more than half to 3p a share earlier this year and it does not look likely to raise it in the near future. (DS)

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