Lloyds results show how much banks have benefitted from taxpayer-funded pandemic job support

A 72 per cent plunge in profits is never something to be welcomed but despite that unpleasant looking number Lloyds Banking Group had reasons to feel cheerful as it unveiled its annual results. 

The sharp decline in its earnings was driven by the need to set aside a huge chunk of money to cover bad loans, some £4.2bn for the year as a whole. 

Given the economic crisis wrought by Covid-19, that was inevitable. But while unemployment, at a five-year high of 5.1 per cent, is now rising sharply and is a long way from its expected peak, measures such as the Job Retention Scheme and other government interventions have limited the damage. 

Being on furlough is far from ideal for those just about managing, given that they will have endured a salary cut of at least 20 per cent (the scheme pays 80 per cent of an employee’s wages up to a maximum of £2,500 a month) but it’s infinitely preferable to being on universal credit.

There are a still significant number of people on a slippery slope – at the tail end of last year Citizens Advice found one in seven Britons (14 per cent) had fallen behind on their bills. But it could be a lot worse. Lenders have been bracing themselves for the hammer to fall. Their tin hats have so far held up.

Lloyds final quarter, meanwhile, could almost be described as balmy. In it, the bank recorded a pre-tax profit of £792m, more than £300m ahead of the City’s consensus forecast. The impairment provision was tiny compared to those made earlier in 2020. The bank also resumed its dividend, in common with others. 

The suggestion by some city analysts that it could consider releasing some of the money it has set aside was a little premature and this isn’t likely to happen for the foreseeable future.

Lenders remain keenly aware that the government will at some point bring the curtain down on its schemes and that things will probably get sticky when it does. Ditto the Financial Conduct Authority, which fired a shot across the industry’s bows over the treatment of vulnerable consumers this week. 

Yet Lloyds should be able to weather the storm when it comes, as should the other big banks.

In part this is because of the regulatory reforms enacted after the financial crisis. The sector is (much) better capitalised, more conservatively run and considerably safer than it was. 

However, as these results make clear, it has also benefitted handsomely from those schemes. 

Lloyds has advanced billions of pounds in business loans that are government backed. The job support the government has provided means people have been able to manage their credit a lot better than had they been on the universal kind. 

Competitive threats? The challenger banks the government sought to encourage after the financial crisis haven’t delivered the challenge policymakers hoped to see. One of them, Metro Bank, underlined the point by reporting a £314m pre-tax loss, which set off alarm bells in the City. 

Investec’s Ian Gordon expects it to remain in the red through to 2024. A cash call may be coming. 

Against that, the big four (Barclays, RBS, and HSBC along with Lloyds) seem set fair. 

Taxpayers kept the big banks in business in 2008, either through vast chunks of direct state aid or indirectly via the billions pumped into the banking system to prevent it from seizing up.

They’ve done the banks, and their shareholders, another solid turn this time around. A lot of furlough cash is ultimately going to end up in their coffers. 

Charlie Nunn, who is preparing to replace Antonio Horta-Osorio as Lloyds Banking Group CEO, would do well to take note of that. The same goes for his peers. One way of returning the favour would be by playing nice, particularly with those who get into difficulty in the months ahead.