Part-nationalized Lloyds Banking Group, Britain's biggest retail bank, on Tuesday reported a 27 percent drop in pretax profit in the third quarter compared with a year ago and the bank admitted it may miss some of its medium-term financial targets.
Lloyds said Tuesday that it was reassessing its assumptions mainly because of weaker than forecast GDP growth and the anticipated timing of changes in the base rate. Earnings had also been affected by higher wholesale funding costs, the bank said.
"If the current weaker economic conditions persist, the attainment of some of our medium-term financial targets, principally with regard to income-related metrics, may be delayed to beyond 2014," said Lloyds, which is 40 percent owned by British taxpayers.
Despite the warning, Lloyds shares were up 3.3 percent at 28.6 pence in early trading on the London Stock Exchange.
For the three months ending Sept. 30, Lloyds reported a pretax profit of 644 million pounds ($1.03 billion) compared with 885 million pounds a year earlier. It did not report a net figure for the period.
Income fell from 5.6 billion pounds to 5.1 billion pounds. The company also reported that provisions for bad loans fell from 2.9 billion pounds to 2 billion pounds, and operating expenses had been shaved by about 130 million pounds.
The earnings report did not say anything about the situation of Chief Executive Antonio Horta-Osorio, who has taken a medical leave, reportedly for stress.
For the first nine months of the year, Lloyds reported an after-tax loss of 2.8 billion pounds compared with a profit of 1.6 billion pounds a year earlier. The bank was driven to a loss because of a 3.2 billion pounds provision, booked in the first quarter, for compensation to customers who were mis-sold payment protection insurance.
Lloyds said it had disposed of 11 billion pounds in noncore assets during the third quarter, raising the total for the year to 42 billion pounds.
"Lloyds' revenues are in structural decline due to a combination of rising funding costs and a shrinking balance sheet," said Ian Gordon, analyst at Evolution Securities.
"We advise investors not to be led astray by the fluffy talk of growing revenues that lay within Antonio's June strategy day presentation," Gordon added.