Lloyds shares down on PPI claims

Shares in Lloyds Banking Group (LLOY) are currently down over 8% in morning trading on the FTSE after announcing losses of £2.4 billion for the quarter.

This was primarily driven by the bank setting aside £3.2 billion to cover PPI miselling claims. It also had to set aside an extra £500 million on losses directly connected with Irish mortgage defaults.

However, with one-off losses aside, Lloyds made a pre-tax profit of £284 million, lower than the £1.1 billion in revenue in last year’s Q1.

While the figures initially look bad, further details show that Lloyds has managed to reduce its dependency on central bank funding to £70 billion, down from £84 billion last quarter.

NOTES:

While Lloyds is obviously suffering impairment charges from different fronts, it is clearly restructuring to become a healthy bank.

Initial losses over PPI and Irish mortgage debt were always on the cards, but the losses overall suggest the bank is slowly but surely turning its fortunes around.

Coming asset sales, not least of high street branches, should help generate further income, to help Lloyds continue its progress from near-collapse to better health.

Overall, I’m putting Lloyds on “buy” and have already bought at 55p, as this looks like a temporary dip, with the expectation that within 6 months we will see Lloyds shares bounce into the early to mid-60′s, resulting in a 10-15% return.

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