Lloyds Banking stays tight-lipped on dividends and buybacks so what is it planning?

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Strong quarterly results from Lloyds Banking Group PLC (LSE:LLOY) suggest the lender is well set up to reward income-hungry investors next year.


The FTSE 100 bank’s third-quarter numbers beat the City’s estimates with a strong profits performance and brighter outlook, but no dividend has yet been released.


Analysts were impressed that statutory profits of GBP2.0bn and GBP2.2bn underlying, up 27% on the previous quarter and almost double those from a year ago, were not only down to further release of credit impairments but a strong performance in mortgage lending, higher deposits and higher net interest margins.


Earlier this week HSBC reported profits mainly boosted by the release of previous bad debt provisions and said fees are picking up again (https://www.proactiveinvestors.co.uk/companies/news/964104/hsbc-unveils-buyback-as-profits-soar-964104.html), while last week Barclays hailed its best ever third quarter as its investment bank did the heavy lifting.


Celebrating their return to form, HSBC unveiled a big buyback and Barclays boss Jes Staley primed shareholders to expect bumper dividend payments going forward.


But there was nary a word from Lloyds new boss Charlie Nunn, apart from that the group’s aims continue to be the provision of “sustainable, long-term returns for our shareholders”, which could suggest a big payout is not likely.


Lloyds certainly has the cash and as the UK’s biggest lander the expected upwards direction of travel for interest rates from the Bank of England, seems to bode very well.


Its capital ratio stood at 17.2% at the end of September, significantly ahead of its ongoing target of around 12.5% and regulatory requirements of 11%.


The strong capital position, said analyst Gary Greenwood at stockbroker Shore Capital, “bodes well for future shareholder distributions”.


He think a “sizeable” share buyback will be announced alongside the full year results in February.


That Lloyds has more than enough cash than it needs to keep locked up is clear, but this does not guarantee it will dish it all out to shareholders when it chooses, as one of Nunn’s chief targets when he joined will have been to beef up the wealth arm.


Nunn could therefore decide to spend a large chunk of the cash on more acquisitions to strengthen the Scottish Widows arm after July’s purchase of online investment platform and robo-adviser business Embark, which is due to complete by the end of the year.


It seems likely investors will get a little from column A and a little from column B, and we will have to wait until February to find out.

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