The initial days of the year 2020 have brought some sad news to the employees of Lloyds Banking Group Plc (“Lloyds”). Lloyds has cautioned around 60,000 employees including the chief executive officer, António Horta-Osório that company may cut down bonus owing to many difficulties at the bank. This includes £1.8 billion charges of payment protection insurance claims in October 2019, which going to affect full-year profit and reduced third-quarter profit for the year 2019 by 97 per cent.
The remuneration committee of Lloyds, which adjudicates the final quantum of the bonus, had set aside £464.5 million to be distributed to staff and top executives in the year 2019. However, the pay-out figure for the year 2020 is expected to fall for the first time since 2016. Additionally, Lloyds staff trade unions, including Accord, also informed members about the reduction in bonus and said that the company has made it clear that the quantum of performance bonus in March 2020 is expected to be smaller than in the previous year.
Ged Nichols, Accord’s general secretary, said that Bank employees should not be punished for matters that are outside their control. A national officer for union Unite, Rob McGregor, also said that the potential cut in bonus would harm low-wage staff who barely manage to make ends meet. The lowest salary for permanent employees is £17,510. The group chief executive of Lloyds, Horta-Osório was rewarded £6.3 million in the year 2019 which consisted of a £1.2 million of group performance bonus. He is currently qualified for the additional benefit of nearly 140 per cent of his wage, while co-worker executives draw up to 100% bonuses.
Lastly, Lloyds has stated that no decision has been made on the issue yet. The entire decision regarding the bonus will be debated by the members on the committee for remuneration, which is a part of the yearly procedure. The bank has also initiated a new procedure for challenging bonuses that do not fall under the purview of thee formal grievance process, which typically includes union representations. However, bank employees can decide to file an objection if they suspect bias and denial. However, bonus is likely to be paid out in April 2020, after annual results are declared on 20th February 2020.
Factors affecting the UK financial system which includes UK banks
The Financial Policy Committee (“FPC”) has been continuously judging the UK’s core financial sectors or UK’s financial system which includes banks, insurance companies and dealers. It is estimated that the banking sector has been facing risks due to possibility of a worst-case, disorderly Brexit. There has been enhanced pressure on interest rates in the UK as well as a decline in exchange rates. This has been accompanied by a lacklustre performance of UK equities.
Activities by authorities and organizations since November 2018 have resulted in some progress in the preparation of the UK economy to face a no-deal Brexit. However, material risks of economic disruptions continue to be present. The FPC remains of the opinion that its 2018 stress test of major UK banks was suitably severe to incorporate the shocks of a disorderly Brexit.
In the absence of additional measures by European Union authorities, some trouble to cross-border financial services can be surmised. However, that kind of interruption is expected to majorly affect European Union businesses and households, it could increase volatility and percolate back to the UK in ways that cannot be fully visualised or mitigated.
The UK Government has passed legislation that UK businesses and households can be serviced by European Union-based banks after Brexit. However, European Union has not initiated reciprocal action. As a result, major UK-based banks are relocating their European Union customers to subsidiaries in the European Union, so they continue to be serviced by them.
Overview of Lloyds Banking Group Plc
Lloyds Banking Group Plc (LON: LLOY) is a prominent United Kingdom headquartered financial services group which provides various types of financial services as well as banking services and concentrates on commercial and retail customers. LLOY has different brands like Lloyds Bank, Bank of Scotland, Halifax and Scottish Widows.
LLOY – Financial Highlights
On October 31st, 2019, the company declared the financial highlights for the nine months ended on 30th September 2019.
As per the company information, the very strong financial performance with statutory results derailed by extra payment protection insurance claims in the third quarter of 2019. The statutory profit before tax was recorded at £2.9 billion which included an extra £1.8 billion payment protection insurance claims charge in the third quarter of the year 2019. The Net income of the company was recorded at £13.0 billion in nine months of the year 2019, which was down by 3 per cent, with marginally lower average interest-earning banking assets of £434 billion. Net interest margin was 2.89% while other income came in at £4.4 billion, which was down by 4 per cent. The net interest margin reduced by 4 basis point in nine months of the year 2019.
Due to declines in both remediation charges and operating costs, the total cost of £6.0 billion reduced by 5 per cent and market-leading cost to income ratio also reduced to 46.5 per cent in 9MFY19 from 47.5% in nine months of the year 2018. The credit quality stayed strong with a net asset quality ratio of 29 basis points in the nine months of 2019.
Loans and advances were at £6 billion at the end of the period, with the bank’s focus on the mortgage book. It benefited from both the Tesco mortgage acquisition & organic growth, Motor Finance and SME segments
LLOY - Share price Performance
As on 13th January 2020, at 09:44 A.M GMT, by the time of writing, LLOY share price was reported to have been trading at GBX 59.50 per share on the London Stock Exchange, a decline in the value of 1.38 per cent or GBX 0.83 per share, in comparison to the previous day’s closing price, which was reported at GBX 60.33 per share. The company’s market capitalisation was reported at GBP 42,262.71 million with regards to the current stock price.
LLOY current share has revealed a positive change of 23.54 per cent as compared to the price of GBX 48.16 which was the lowest shares in one-year which the stock attained on August 15th, 2019. LLOY share has displayed a negative change of 19.22 per cent as compared to the share price of GBX 73.66 which was highest share in one year, attained on December 13th, 2019.
The beta of the LLOY has been reported to be at a value of 0.7309; it indicates that the movement in the price of the stock of the company is less volatile, as opposed to the movement of the comparative benchmark index in the previous one year.
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