Contrasting recovery of RBS and Lloyds banks scrutinised

State-backed Lloyds Banking Group will on Thursday deliver its first trading update since the Government reduced its stake in the business to 25% by raising £4.2bn from the sale of more shares last month

Andrew Matthews/PA Wire Lloyds Bank
Lloyds Bank

The contrasting recovery fortunes of part-nationalised banks Lloyds and RBS will be examined next week during a busy few days for City updates.

State-backed Lloyds Banking Group will on Thursday deliver its first trading update since the Government reduced its stake in the business to 25% by raising £4.2bn from the sale of more shares last month.

The stock was placed with institutional investors, with a further multi-billion pound shares offering to members of the public expected to take place later in the year.

Its value, which peaked at more than 80p earlier this year, has been falling since the latest placing when shares were sold at 75.5p, and they dipped near to 70p earlier this month.

But analysts at Nomura have upgraded the stock to buy in the wake of the share price fall, raising the target price to 89p and saying Lloyds was on track to be the highest yielding UK bank with a strong capital position.

Taxpayers were left with a stake in Lloyds after its £20 billion rescue during the financial crisis but this has been reduced by the latest disposal, following on from a previous £3.2bn placing last September.

Chief executive Antonio Horta-Osorio confirmed in February that he would take a £1.7m shares bonus and had out £395m to staff after the group returned to bottom line profit - of £415m - for the first time in three years.

It came despite pressure to cut bonuses after it was left counting the cost of past misdemeanours - including another £1.8 billion in provisions for the mis-selling of payment protection insurance (PPI).

Analysts at Morgan Stanley expect first quarter results to show growth in core loans, a slight improvement in margin and underlying profits up 24% to £1.8 billion.

They also expect no further top-up to PPI provisions given the recent charge.

Troubled Royal Bank of Scotland publishes a first quarter update on Friday following annual results earlier this year that showed it had tumbled to an £8.2 billion loss.

The figures come in the wake of the announcement that the Government had scuppered its hopes of paying bonuses twice the size of salaries.

Argos owner Home Retail Group reports full-year results on Wednesday after a buoyant trading update last month when it hiked City profit hopes for a second time this year.

The figures will be the first under new chief executive John Walden, who took over at the helm from Terry Duddy on March 14. Mr Duddy left the retailer on a high note, with a final update to investors revealing that profits for the year to March 1 would be slightly ahead of market expectations of £111m.

Home Retail, which also owns DIY chain Homebase, had previously upgraded forecasts in January after Argos enjoyed its best Christmas performance for more than ten years, driven by further progress in its drive to become a digital-led retailer.

A makeover has scaled back the print version of the Argos catalogue, alongside plans to close or relocate at least 75 stores over five years. Argos’s like-for-like sales increased by 5.2% in the final eight weeks of the financial year, with demand particularly strong in video gaming, TVs, small domestic appliances and white goods.

Like-for-like sales at Homebase increased by 9.3% in the eight-week period, driven by further growth in big ticket sales such as kitchens and bathrooms. Cantor Fitzgerald analyst Freddie George said he was impressed with the new Argos store format, and lifted profit expectations for the year to £112 million, which would be a 23% increase on the previous year’s £91m.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: “Home Retail remains well placed in terms of capturing the UK economy’s unfolding recovery.”

Costa and Premier Inn owner Whitbread is expected to deliver a 12% rise in earnings after a recent strong trading performance.

Analysts on average expect annual pre-tax profits to rise to £397.9m.

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