Lloyds (LLOY) shares have staged a remarkable recovery and are back in positive territory following the bank’s Q3 earnings release this morning that was headlined by a profit miss, a pension fund swinging into deficit and a £1bn PPI repayment bill. With profits down on expectations by 6% (-15% YoY) shares opened down by 3% this morning. Fast forward five hours, however, and the bank is slowly climbing up the UK 100 leader board. What lies behind the surprising bounce? 

While investors digested the report over the course of the morning, the release of the British Banks’ Associations Mortgages for House Purchase figures snuck under the radar, the September figure showing an increase of over 1,300 from August to its highest levels in three months. Lloyds currently holds the biggest mortgage book in the UK and, after BoE Governor Mark Carney’s (marginally) hawkish comments to the House of Lords yesterday casting doubts on any further rate cut, perhaps investors are eyeing up the prospect of more attractive margins in the new year. Even more surprising than Carney’s adventure to the Lords chamber may be the fact that Lloyds manage to increase their capital generation in the face of a swing for its pension fund, maintaining prospects for a 5p yearly dividend payment to shareholders.

If Q3 showed a 6% profit miss in light of all of the doom-and-gloom forecasting in the aftermath of the EU referendum, and with the prospect of its PPI repayment bill finally nearing its end, perhaps the future for Lloyds is still bright after all?

Henry Croft, Research Analyst, 26 Oct