Lloyds Banking Share Discussion Threads

[utrickytrees] 05/11/2024 22:38

Gekz, she has been leader for about 27 hrs, that said I did write yesterday that she was short on policy because her line managers hadn't come up with any yet!

[utrickytrees] 05/11/2024 22:33

Trump 8/15
Harris 6/4

Trump run away winner.

[scruff1] 05/11/2024 22:10

I see according to the DT we are suffering from a 'Dunkelflaute'. A period when there is no wind and we have only been able to meet 3% of peak energy needs so we have fired up the gas stations (imported) and the garden incinerators burning wood pellets(imported) and £250m electricity a week imported from France. Sounds like a sound energy policy. Militit is a similar phenomenon - Dummkopf. I hope we can import food on an even larger scale when Reeves and Reed (£420 wellies)get their new farm tax policy operational

[utrickytrees] 05/11/2024 21:59

Good time to become leader and put your stamp on a party thats humiliated and at low ebb. She looks strong on paper.

[utrickytrees] 05/11/2024 20:40

Trumps not perfect but he is a leader and he is accountable. Harris is just the fall guy for a faceless bureaucracy government, in much the same way as von de leyen is. A Democrat government is dangerous & out of control because it is so amorphous with too many significant competing architects. There will be no negotiations with Russia over UKR or peace in the ME with the Democrat Blob in the WH.

[bargainbob] 05/11/2024 20:22

Appreciate the effort
Hardup1 , buy you a pint when they reach a pound .

[hardup1] 05/11/2024 18:10

After 178 trading days, buyback complete to date:
Total shares to date........................3,432,340,994
Aggregate cost to date... ..................£1,861,310,943.01
Average price paid to date..................54.2286p
Percentage of £2 billion buyback completed..93.07%

[freddie01] 05/11/2024 18:06

The structural hedge: Britain's big banks' little-known weapon as rates fall

Structural hedging is especially prevalent at the current moment

Updated: 09:14, 5 November 2024


Britain's biggest lenders enjoyed bumper profitability in the third quarter as the sector began cashing in on a tailwind that could drive returns in the years ahead.

Lloyds Banking Group and Barclays recently reported much stronger-than-expected growth for the period, thanks to healthy income.

The former, whose brands include Scottish Widows and Bank of Scotland, recorded £1.8billion in pre-tax profits, while the latter achieved an equivalent £2.2billion.

Both firms partially credited their performances to 'structural hedging', a practice that has helped offset the effects of customers refinancing mortgages at lower rates or choosing alternative savings accounts paying higher returns.

But what is structural hedging, how does it help banking giants' profitability, and which banks are set to benefit the most from its use?

What is a structural hedge?

Hedges are essentially an insurance policy used by businesses to protect themselves against dramatic cost spikes or financial losses.

Airlines, for example, regularly purchase fuel at a fixed price for a specified period because petrol represents a massive chunk of their expenses, and a sudden price surge could severely detriment their profits.

For British lenders, earnings are generally contingent on net interest margin (NIM) - the difference between what they pay savers and receive in loans.

Competition to offer the best deposits and mortgages, as well as other loans, can be fierce and heavily impact a bank's NIM.


So, to preserve profits against exposure to interest rate movements, banks will take out 'structural hedges'.

This could be in the form of interest rate swaps - a contract with another party to exchange interest payments, with one side usually paying a floating rate and the other an unchanged rate.

Alternatively, they could establish a fixed-rate bond portfolio that pays a consistent percentage of interest over a predetermined amount of time.

Structural hedging is especially prevalent at the current moment as UK interest rates trend downwards after gradually climbing from record low levels between 2021 and 2023 owing to soaring inflation.


British lenders often hedge a large share of their deposits and loan books, but they usually avoid hedging all of it.

For NatWest, more than 40 per cent of its deposit base - equivalent to £175billion - constitutes part of its product structural hedge, which has an average span of two and a half years, meaning it takes a full five years to reprice.

HSBC has an even bigger structural hedge - it expanded by $27billion over the last quarter to $531billion, primarily due to fluctuating foreign exchange rates. Of this, $30billion is maturing in 2024 and $115billion next year.

How banks benefit from a structural hedge
One major advantage to structural hedging is that lenders can cushion their turnover and earnings against extensive volatility.

Analysts often incorrectly predict short-term interest rates because of unforeseen geopolitical and macroeconomic factors.

Even when inflation is falling, central banks can take longer than expected to cut rates.

While this can bolster lenders' interest income, this revenue stream can be eroded if banks fail to hedge before interest rates decline.

So if a bank has a bond portfolio locking in 5 per cent, but rates hit 3 per cent ahead of maturity, their income and profits will be better shielded.

All of the larger UK banks operate a structural hedge,'
Benjamin Toms, analyst at RBC Capital Markets
Barclays estimates the drop in interest rates from 5 per cent to 0.5 per cent in 2008/09 could have wiped out income from its rate-insensitive current accounts by 90 per cent.

Instead, hedging meant its income decreased by just under 5 per cent over this period.

Will Howlett, financial analyst at Quilter Cheviot, said: 'The real benefit arises in an environment such as that we are seeing now where rates are falling – so banks' hedges are rolling on to higher fixed rates while paying out at a lower rate on the variable leg.'

Howlett also says interest rate hedging reduces the capital lenders need to hold against their banking book exposures, which can 'optimise balance sheet efficiency'.

This grants them more leeway to even more generously reward investors - UK banks paid out £3.3billion in dividends during the third quarter of 2024, a larger amount than any other sector, according to Computershare.

What are the downsides to structural hedging?
In an elevated rate environment, banks are sacrificing some profits in favour of the stability provided by hedging.

However, if banks opt for hedges with long maturities, this can blowback against them when interest rates start going up again.

As the old adage goes, rates rise like a rocket but fall like a feather, so lenders absorb more risk by not choosing shorter-term bonds and interest rate swaps.

'The longer the duration of the derivative transaction, the less nimble a bank can be to benefit if interest rates start to rise, so there are potential costs,' says Russ Mould, investment director at AJ Bell.

He adds: 'Nor do banks hedge their entire deposit and loan books as these transactions come with costs of their own.'

Analysts back Barclays
In the three months ending September, Lloyds Banking Group's total net income increased by 5 per cent to £4.3billion from the prior quarter.

The FTSE 100 firm enjoyed a slightly bigger net interest margin thanks to structural hedge earnings compensating for customers refinancing mortgages and choosing different savings accounts.

Structural hedging similarly aided growth in third-quarter interest income and profits at Barclays and NatWest Group, with both surpassing pre-tax profits forecasts by around £200million.

NatWest, which is 16 per cent owned by the UK Government, also saw its shares hit their highest level in nine years following the publication of its results.

Standard Chartered credited its short-term hedge roll-off and repricing of structural hedges for helping to lift its treasury income by $281million year-on-year in the July to September period.

The Asia-focused firm's announcement came as it reported underlying operating income jumped by around $500million to $4.9billion, its best third-quarter result since 2015.

And HSBC attributed positive fair value movements on structural hedging to partly offsetting lower revenue at its corporate centre arm, which includes its central treasury and legacy businesses.

'All of the larger UK banks operate a structural hedge,' notes Benjamin Toms, analyst at RBC Capital Markets.

He adds: 'The key difference is in how mechanical each bank is in replacing existing swaps, with a bank like Barclays being very mechanical and a bank like Lloyds being more tactical, NatWest sit somewhere in the middle.'

He believes Barclays will be the primary beneficiary of this tailwind because of the 'shorter average duration' of its structural hedge.

Quilter's Howlett thinks the bigger domestic British banks - not just Barclays - will reap a greater boon when compared to the more Asia-focused banks like HSBC and Standard Chartered.

'As interest rates fall,' says Howlett, 'these banks will continue to deploy hedging strategies to good effect and ensure they continue to see the benefit of higher interest rates, even if the BoE is dropping the headline rate.'

[bargainsniper] 05/11/2024 16:45

Gilt yields soaring

[xxxxxy] 05/11/2024 15:41

Bitcoin jumps as markets bet Trump winning US presidential raceBitcoin has lurched upwards in a potential sign that markets think Donald Trump is leading the race for the White House.The world's largest cryptocurrency has risen as much as 3.6pc today, including a jump of 1.5pc within the last hour.Mr Trump has been positioning himself as the "Crypto President" for his 2024 campaign, signalling he would support the environment for digital currency....Daily Telegraph

[careful] 05/11/2024 14:17

No chance of WW3 with so many nukes.

When World leaders know their heads will be blown off as will all of their families, then here will be no war.

It throughout history our heroic war leaders faced the threat of certain death there would never have been wars.

All hyped up be special interest groups.

[hardup1] 05/11/2024 10:25

smurfy, the TVR RNS issued at 15:51 on 31st October was 61,176,466,541 in issue. As that was issued before market close I assume that had not been updated for the shares bought back on the 31st as the Transaction in Own Shares RNS was only released at 17:41. So the total shares that have been bought back 31/10, 01/11, and 04/11 is 200,722,543. So subtracting that from the TVR figure gives a figure of 60,975,743,998 shares in issue.

[skinny] 05/11/2024 09:38

FWIW :- Goldman Sachs cuts Lloyds Banking price target to 64 (73) pence - 'neutral'

[smurfy2001] 05/11/2024 09:37

Must be below 61bn shares by now.

[scemer] 05/11/2024 09:23

Forgot to say hardup good post from hounddog makes a lot of sense and can see the bank's and the whole group not taking the exorbitant hit many are suggesting

[scemer] 05/11/2024 09:10

Buying back some descent lumps of stock while it's cheap