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Investing.com -- Lloyds Banking Group PLC (LSE:LON:LLOY) stock climbed 3.5% as the market responded positively to its fourth-quarter results, which included a higher-than-expected dividend and a substantial buyback program.
The company announced a dividend of 2.11p per share, slightly above consensus estimates of 2.03p per share, and a £1.7 billion buyback program, aligning closely with expectations of £1.696 billion. This news provided some relief to shareholders, especially considering the charge taken for motor finance.
The bank reported a Common Equity Tier 1 (CET1) phased-in ratio of 13.5%, which was down 80 basis points quarter over quarter but remained in line with management’s target and above the regulatory requirement, excluding Pillar 2 buffer (P2b), of 12.0%.
Lloyds also indicated a greater than £5 billion risk-weighted asset (RWA) uplift related to CRD IV legislation, with £3.3 billion recognized in fiscal year 2024, of which £2.6 billion was accounted for in the fourth quarter.
Net interest income (NII) beat consensus by 1%, growing 1% quarter over quarter due to structural hedge earnings, which compensated for deposit churn and asset margin compression. The net interest margin (NIM) increased by 2 basis points quarter over quarter to 297bps, meeting consensus expectations.
The structural hedge contributed positively, while mortgage margin compression and deposit margins had an offsetting effect.
Lloyds also took a significant remediation charge of £775 million in the fourth quarter, primarily due to a £700 million charge related to the Financial Conduct Authority’s (FCA) review of historical motor finance commission arrangements. This brings the cumulative provision to £1.15 billion.
Looking ahead, Lloyds provided FY25 guidance that includes net interest income of approximately £13.5 billion, a net interest margin of around 305 basis points, and robust growth in average interest-earning assets, all of which are in line with or exceed consensus estimates.
Despite these positive figures, RBC analysts expressed caution, stating, "In our view, LLOY looks expensive relative to peers, and we believe the re-rating story will be much tougher from here. We feel that structural hedge tailwinds, growth in other income and good asset quality are trends now much better understood."
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