Member Article

Lloyds Banking Group surges following 1Q trading update

The UK was almost alone among European countries today with it’s business as usual, whilst the majority of the continent “enjoyed” a May-Day bank holiday. The quotation indicate the ongoing political and economic struggle that was evident today in the significant number of May Day rallies occurring across the continent. They came just days before Greek and French elections that are to take place on Sunday, with Unions in Spain and Portugal were also marching in protest against austerity.

Whilst there was little in the way of macroeconomic data, there were a number of high profile FTSE 100 first quarter announcement to occupy investor attention.

Man Group, the world’s largest listed hedge fund manager, suffered $1 billion of client outflows in the first 3 months of 2012. The flagship AHL fund, that seeks to reduce volatility using complex mathematical algorithms, was up 0.8% over the year to 26thMarch, on average 14% away from its high water mark, a bench mark level above which Man will earn lucrative performance fees. The share, already down in the doldrums, fell 5.5% to 97.8p today.

BP, Europe’s second largest oil company, announced disappointing results largely as a result of asset sales and a drop in production relating to the 2010 Gulf of Mexico spill. The group announced replacement cost profits (i.e. stripping out the effect of oil price movements) of £2.95 billion in the first quarter, lower than the £3.06 billion in the previous quarter and behind expectations. The sale of oil fields in the US, Canada and the North Sea would also mean that output would continue to decline in the 2ndquarter. Shares responded by falling around 3% in early trade although finished the day 0.8% lower at 441.3p.

In contrast to the above, Lloyds banking group bucked the trend as investors welcomed the £288 million pre-tax profit in the 1Q, as opposed to the £3.5 billion loss in the same period of 2011. The 40% state owed institution set aside £375 million to pay for payment protection insurance claims, taking the total provision to £3.6 billion. The underlying picture did however point towards signs of improvement, with a significantly less exposure to bad loans and the eurozone, and higher profits in its core businesses. The bank also repaid a substantial amount of the Treasury (and therefore Tax-payer) supported borrowing it took during the financial crisis, with a total of £12.9 billion still outstanding compared to £157.2 billion at its peak in 2009. Shares topped the FTSE 100 with their 8.3% appreciation to 33.6p.

The FTSE finished the day 1.3% higher at 5812.23 after the Institute of Supply Management PMI data out of the US gave a boost to risk assets globally around midday.

This was posted in Bdaily's Members' News section by James .