The Lloyds pre-tax profit figure for the first six months of 2021 rose sharply, reflecting how a year ago big provisions for credit losses against the pandemic were set aside. It has announced that it is buying Embark, an investment and retirement platform.

UK-listed Lloyds Banking Group yesterday said that it planned to buy Embark Group, a fast growing investment and retirement platform business with around £35 billion ($8.8 billion) of assets under administration on behalf of about 410,000 clients.

The lender is paying about £390 million for Embark; it said the deal is expected to affect group Common Equity Tier 1 (CET1) capital by about 30 basis points, and deliver a “mid-teens” return on invested capital in the medium term.

Separately, the lender announced that it had made net income of £7.6 billion ($10.6 billion) in the first six months of this year, rising 2 per cent year-on-year.

Statutory profit before tax stood at £3.9 billion, surging from a comparable loss of £602 million a year before. As with many other banks, the shift was a result of the bank setting aside £3.818 billion to cover impairments as the pandemic broke in H1 2020. In the latest half-year period, the bank logged a release of £656 million.  

Shares in the bank were down by about 1.1 per cent mid-afternoon yesterday. 

Lloyds’ acquisition adds a mass-market, self-directed segment to its wealth management offering, which runs alongside its Schroders Personal Wealth joint venture with Schroders, and its stake in Cazenove Capital.

“We are targeting a top-three position in direct-to-consumer self-directed and robo-advice business in the medium term. We are also targeting a top-three position in the individual pensions and retirement drawdown market by 2025. The acquisition of Embark transforms our ability to achieve these objectives. As a consequence, we are increasing our Strategic Review 2021 net new money target from £25 billion to c. £40 billion by 2023, to reflect this increased growth potential,” William Chalmers, interim group chief executive, said. Charlie Nunn will take over the role full-time after August. 

On Schroders Personal Wealth, Lloyds said it has “deepened customer relationships via a 220 per cent increase in referrals” to that business compared with the first half of 2020.

Among other details, Lloyds said that its CET1 ratio – a standard international measure of a bank’s capital buffer – was 16.7 per cent and ahead of its ongoing target of around 12.5 per cent and the regulatory requirement of about 11 per cent.

Big leaps, capital surplus
“Massive swings in the level of bad loan provisions is flattening the bottom line, leading to a huge leap in profits for Lloyds this quarter. We expect that trend to continue for much of this year, assuming the outlook for the UK economy continues to brighten, but come 2022 the tailwind will have blown itself out – it will be up to banks to make their own weather,” Nicholas Hyett, equity analyst at Hargreaves Lansdown, said. 

“Fortunately consumers are opening their wallets and reaching for their credit cards once again, together with the well-publicised spike in mortgage lending that’s boosting bank loan books. Meanwhile net interest margins, long suffering from falling central bank interest rates, are enjoying the start of a modest recovery as borrowers turn back to higher interest overdraft and credit card facilities. That’s a relief because conditions are really far from ideal for the sector – which probably explains the shockingly low valuations across the industry,” he continued. 

“Immediate performance to one side, the other question facing Lloyds is what to do with the huge capital reserve it built up in preparation for a coronavirus financial crisis that never quite emerged. While rivals have announced share buybacks, Lloyds has jealously guarded its reserves, even after the Embark deal annoucned today, and we can’t help but wonder what it intends to do with the surplus,” Hyett added.