Lloyds (LYG.US) Q3 pretax profit beats expectations; impairment charges surge 78% year over year.

Lloyds (LYG.US) third-quarter profit beat market expectations, mainly driven by growth in net interest income and fee income, and the bank also maintained its full-year guidance. Data showed that in the three months ended September 30, Lloyds' net interest income was GBP3.8 billion (about US$5.1 billion), up 10% year over year and in line with expectations; pretax profit for the quarter was GBP2.33 billion, above the average analyst estimate of GBP2.29 billion. The third-quarter return on tangible equity was 19.5%, up from 17% in the second quarter; total deposits were GBP502.8 billion, up from GBP500.9 billion in the second quarter. The bank still expects operating costs in 2026 to be below GBP9.9 billion. Chief Executive Charlie Nunn said in a statement that the bank has "continued to grow income, improve operating leverage and deliver strong and stable credit performance." Underlying impairment charges for the quarter rose to GBP313 million, up 78% year over year, reflecting the "deteriorating economic outlook" and the impact of higher interest rates. UK interest rates have remained at 3.75% so far this year, but inflation concerns triggered by the Iran war have increased the possibility of further rate hikes. Banks typically earn higher profits in a high-rate environment because the spread between loan interest and deposit interest widensalthough HSBC HOLDINGS' disappointing outlook earlier this week showed that banks cannot always raise performance expectations on that basis. Lloyds' year-over-year profit increase was particularly notable, after the bank booked an GBP800 million provision in the third quarter of 2025 to compensate customers who were misled into taking out car loans. Lloyds is seeking to further expand its wealth management and insurance businesses. The bank plans to increase investment in the corporate pension sector to compete with companies such as Aviva. Lloyds is also pushing more cross-selling, integrating wealth products and insurance into a more unified banking app. The Halifax household banking brand is also being folded into Lloyds' larger brand system. According to presentation materials earlier this year, the London-based bank plans to expand its corporate and investment banking business overseas to support clients' activities in the United States and broaden its European business footprint. The bank said it plans to bring its existing capabilities to the US market. On Wednesday, the UK government confirmed plans to raise taxes on the banking sector, but only for a period of time and by less than some had expected. Following the news, Lloyds and other UK bank stocks rose at one point. After the earnings release, as of the time of writing, Lloyds' US-listed shares fell 3.8% in premarket trading.