Lloyds Banking Group has insisted it delivered a “robust” performance in the first three months of the year despite posting falling profits.
The lending giant saw bottom-line profits nearly halve, down 46% to £654 million in the first quarter, as it was hit by charges from buying back expensive bonds from investors.
Profits fell 6% to £2.1 billion on an underlying basis, but it said that excluding the TSB business sold last year, profits were “stable” on a year earlier.
Antonio Horta-Osorio, group chief executive of Lloyds, said the results show the group’s ability to “actively respond to the challenging operating environment”.
But shares fell 2% after the results.
Lloyds took a £790 million charge from its controversial decision to buy back £3 billion of high-interest bonds – also called “enhanced capital notes” or ECNs.
It won a lengthy legal battle against investors unwilling to sell the bonds, which offered high levels of income, and the bank will receive a £900 million cash boost from the move over the next four-and-a-half years.
Figures from Lloyds come after a difficult first quarter for banks, with investment banking rivals hit particularly hard amid recent stock market turmoil.
Barclays posted a 25% fall in first-quarter profits on Wednesday after its corporate and investment banking arm saw underlying profits fall 31%.
Royal Bank of Scotland will reveal how it has fared on Friday.
Retail players have been shielded from the worst of the banking woes, thanks in part to a buy-to-let lending rush ahead of this month’s stamp duty increase.
Lloyds said the first quarter had been “incredibly strong” for mortgages after seeing a surge in demand from buy-to-let borrowers and those buying second homes.
It saw buy-to-let lending rise 3% in the first quarter of the year, helping drive an overall 1% rise in mortgages.
Mr Horta-Osorio added to a flurry of warnings this week over a drop-off in lending following the April 1 stamp duty hike.
But the group said lending was set to level out over the year.
Santander warned on Wednesday that the mortgage industry faced “challenges” over the year ahead following the drop-off in demand since April 1 and ahead of the EU referendum.
Estate agencies Countrywide and Foxtons also said they expected a marked slowdown in activity.
Lloyds, which holds its annual general meeting for shareholders in mid-May, said it took no further charges for the payment protection insurance (PPI) mis-selling scandal, with claims “broadly” in line with its expectations at around 8,500 a week.
A £2.1 billion hit from PPI last year sent its statutory pre-tax profits down by 7% to £1.64 billion in 2015.
Lloyds has ramped up cost-cutting measures in the past few months under a plan set out in 2014 to close 200 branches and slash 9,000 jobs by the end of 2017.
Last week it announced 625 job cuts, with some roles going offshore to India, although these were part of the job losses announced in 2014.
Taxpayers still own just under 9% of Lloyds and a British Government plan to sell the remaining shares in February was postponed amid turmoil in the financial markets.
The British Government will only sell the shares when the price rises above the 73.6p break-even level at which Lloyds was bailed out at the height of the financial crisis.