Lloyds Banking Group reported stronger figures for its wealth and insurance business in the first six months of 2018.

(Updates with share price reaction, analyst comment.)

The wealth and insurance arm of Lloyds Banking Group logged an underlying profit of £480 million ($629 million) for the six months to the end of June, rising from £429 million a year earlier, the UK-listed banking group reported today.

This division of the bank said total costs for the six-month period narrowed to £559 million from £582 million, while total income rose to £1.039 billion from £1.011 billion over the 12-month period. Total customer assets under administration stood at £151 billion as at 30 June this year, down from £154 billion at the end of 2017.

Looking across the banking group as a whole, which has returned to full private ownership after recovering from a post-bailout period in 2008, results showed the bank logged a statutory after-tax profit of £2.267 billion in H1, up 38 per cent year-on-year. Earnings per share, at 2.9 pence, rose 45 per cent.

“As a result of the strong performance in the last six months, we have upgraded our financial guidance for 2018. We now expect net interest margin to be in line with the first half of the year, the asset quality ratio to be less than 25 basis points and for capital build to be around 200 basis points, at the top end of our guided range,” the bank said.

Shares in the bank were up 1.6 per cent around 10:00 GMT today, at 63.37 pence per share; at one point shares rose 2 per cent from the open. 

"Investors have much to mull over for although the group appears to be making good progress on many fronts it is a UK focussed bank and Brexit uncertainty is not going to go away for some time. We therefore maintain our hold recommendation but would suggest the shares should be viewed increasingly positively by income seekers," Graham Spooner, investment analyst at the Share Centre, said. 

Lloyds Banking Group, like some of its peers, has been hit by massive claims in recent years over mis-selling of payment protection insurance (PPI), and has had to compensate clients. These claims are coming to an end, which should significantly improve the bank’s ability to pay out dividends going forward, analysts said.

‘The huge jump in Lloyds’ reported profits can largely be summed up in just three letters – PPI. While the bank has taken another £550 million hit in the first half of 2018, that’s around half what it had to put aside this time last year,” Laith Khalaf, senior analyst, Hargreaves Lansdown, said. “Next August marks the cut off-date for claims, which may flush out some more consumer activity, because there’s nothing that stimulates action quite like a deadline. In the short term that may mean Lloyds has to dip into its pockets again, but in the long run that’s going to free up a lot of cash for shareholders. The PPI scandal has now cost Lloyds over £19 billion over the last 8 years, money the bank would have dearly loved to use elsewhere,” Khalaf said.

“Since taking over the reins in 2011, António Horta-Osório has presided over a bank which has swung from an annual loss of £260 million to a profit of £3.5 billion. The share price meanwhile is at roughly the same level it stood at when he became CEO. That’s largely because Brexit means some investors don’t want to touch UK domestic companies like Lloyds with a bargepole. While this sentiment doesn’t look like shifting any time soon, Lloyds shareholders are being paid to wait. The bank is expected to deliver a total dividend of 3.44p this year, equivalent to a 5.5% income yield. Not bad, if you can get it,” he added.