Lloyds Banking Group has posted a £607m loss in the third quarter of 2011 and has warned that it may miss its financial targets.
The bank is 40% owned by the UK government and is part way through a major readjustment of its business, including the sale of 600 branches. CEO Antonio Horta-Osorio surprised markets at the start of November by taking a leave of absence on medical advice, citing fatigue.
The bank, which reported a loss of £3.25bn in its interim statement, said that its margin projections should hold up. Earlier in the week, Lloyds' domestic rivals, the Royal Bank of Scotland (RBS) and Barclays, reported £1.2bn and £2.4bn in profits, respectively.
Under Horta-Osorio, who took over as CEO in March 2011, the bank took a £3.3bn provision for compensation claims over mis-sold payment protection insurance (PPI), which has weighed on its bottom line. It is also reducing its exposure to sovereign debt in the eurozone, reducing its international presence and selling off 632 retail branches - either through a flotation or to a trade buyer.
At Cavendish Asset Management, Paul Mumford wrote that: “On the whole, the Lloyds results are a bit of a relief. Compensation for PPI claims was always going to eat heavily into profits, but this headline detracts from a slow and steady underlying recovery story."
Horta-Osorio's strategy is beginning to pay off, Mumford added, although significant risks remain for the company.
The Portuguese-born CEO has attracted praise from shareholders for his reforms at Lloyds, which has seen the bank rationalising many of its assets, dramatically cutting costs and removing senior staff. However, on November 2 the board announced that he was to take a leave of absence on medical advice. Financial director Tim Tookey - who is leaving the bank in February to join Resolution, the insurance company - is acting as interim CEO.