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A Very Quick Look at Lloyds Banking Group's Earnings

By Stuart J Watson - Updated Apr 7, 2017 at 11:58AM

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Are profits at Lloyds Banking Group distorted by unusual items?

LONDON -- Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Lloyds Banking Group (LSE: LLOY.L) (NYSE: LYG) to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to 31 December

2007

2008

2009

2010

2011

Profit before unusual items* 4,076 874 (9,479) (2,598) 22
Restructuring charges* - (14) (412) (171) (189)
Asset writedowns* - - - (150) -
Impairment of goodwill* - (100) 10,933 - -
Legal settlements* - - - - (175)

*in millions of pounds.

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Lloyds Banking Group reported cumulative losses before exceptional items and tax of 7.1 billion pounds. However, aggregate exceptional costs came to 9.7 billion pounds. Ugly stuff!

This is the first company we've looked at in this series that has actually made a cumulative loss over the last five years. However, not surprisingly, a lot of Lloyds' numbers are distorted by the acquisition of HBOS, and how that was accounted for in 2009. It caused the large pre-tax loss shown above, but an adjustment was also made to write back 10.9 billion pounds of gains recognized at the time of the acquisition. Personally, as an investor, I would ignore the mechanics of this item and just look through to the bottom-line result.

Lloyds has also had a number of restructuring charges in recent years, but given the turmoil the business has been through, these have been relatively modest in total.

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Stocks Mentioned

Lloyds Banking Group plc Stock Quote
Lloyds Banking Group plc
LYG
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