Lloyds rise in profits gives investors confidence
This morning, Lloyds announced a pre-tax profit of £1.6bn for the first half of 2010. Total impairment and cost cutting played a role in the increased profit - a reduction from £13.4bn to £6.6bn. Graham Spooner, investment adviser at The Share Centre explains what this means for investors.
"This is a significant set of results and sees a return to profit for Lloyds after large losses of £13.4bn last year and we expect to see the momentum continuing. These results are ahead of analyst predictions and Lloyds envisage carrying along this path, bolstered by a gradual recovery of the UK economy. Impairment charges continue to fall and net interest margins were improved.
"The bank has fared better in a low interest environment because many mortgagees have been rolling over into higher standard variable rates which lifted margins. It is also important to note that Lloyds is ahead on its Government lending targets to home owners and small businesses.
"The HBOS integration remains on track according to Lloyds but there are possibilities of further challenges to this acquisition and investors are advised to look at this stock as a long term investment. Eric Daniels, CEO, also said that the bank is ahead of schedule to deliver £2bn of cost savings by the end of 2011 as a result of this integration
"The threat of a double dip recession is also real and would prove a challenge to Lloyds as currently there is not enough demand for lending and a further recession will mean even less demand.
"Barclays remains our bank of choice for investors looking for growth and improving income within the banking sector. It is in a potential stronger position than others in the sector because of its international exposure and we currently Barclays list as a ‘buy'.
"Lloyds Banking Group has come a long way after a few couple of bad years and although the bank offers growth potential it still remains a high risk investment. We therefore recommend holding the stocks for the foreseeable future".