Lloyds Banking Group PLC (ADR) (NYSE:LYG) shares spiked Tuesday thanks to LYG’s intention to cut costs more deeply than first thought.
British banks, weighed down by Brexit fears, have little choice but to pare expenses. The consensus view is that the Bank of England will once again move to reduce borrowing costs. That will further erode banks’ already slim net interest margins.
LYG, as Britain’s biggest mortgage lender, is especially exposed to lower rates. That’s why the market applauds any expansion of cost cutting — regardless of central bank monetary policy. LYG stock rose as much as 6.6% in early trading on the New York Stock Exchange.
Lloyds is expected to reduce expenses by hundreds of millions of pounds more than it first targeted and to do so on a shorter time frame.
LYG Targets More Cuts at a Faster Pace
Under its original plan, Lloyds was committed to cut outlays by a billion pounds a year by the end 2017. Job cuts were pegged at 9,000 and 200 branches were to be shuttered. The bank now wants to accelerate the process and bring its annualized cost savings up to 1.2 billion pounds.
That will entail additional layoffs and branch closures. Analysts estimates that another 1,800 more jobs and at least 40 branches will go on the chopping block, the Financial Times reports. As ugly as it may be, the market loves this sort of thing.
Although investors were heartened by LYG’s latest moves, shares remain under severe pressure from Britain’s looming exit from the European Union. Like other British bank stocks, LYG took a nosedive on the result of the referendum, but it was beaten down even before this latest blow.
At any rate, Lloyds has lost about 30% of its market value in 2016 alone.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
