Lloyds rakes in billions but how much is too much?

With interest rates rising and the PPI scandal coming to a close, the bank is set fair to do better still even with the black cloud of Brexit looming

Lloyds' latest results show bank is on a charge (Reuters)

“A landmark year,” was how Lloyds CEO Antonio Horta-Osorio described the bank’s first 12 months as a fully private enterprise since its 2008 bailout. He might well have added: “And you ain’t seen nothing yet”.

The numbers tell their own story. Headline pre tax profits of £5.3 billion, up nearly quarter, were the best since 2006. Income grew 6 per cent to £18.5bn. A combination of dividends and share buy backs are putting a little over £3bn in shareholders hands.

Quite a party. And Lloyds executives will be partying hardest of all. The boss enjoyed an 11 per cent pay rise to £6.4m in a Britain where most people got less than inflation regardless of how hard they worked, how impressively they performed.

Next year the bank he runs should do even better. The first number I quoted - that £5.3bn - was a smidgeon below expectations partly as a result of yet another provision to cover the cost of compensating those mis-sold payment protection insurance.

But with the Financial Conduct Authority’s appalling decision to call time on claims that won’t be a worry for very much longer.

Then there is the fact that interest rates have started to rise, with the Bank of England poised to impose further increases over the coming months.

Lloyds’ net interest margin - the difference between what it pays to depositors and chargers borrowers - was running at 2.9 per cent at the tail end of last year despite the challenges banks face in making money when base rates are low.

That number is expected to rise as they rise. So more money still.

Brexit still hangs like a black cloud over every company trying to operate in an economy run by a Government in hock a destructive corps of low rent Brexiteer jihadis who seem to have utterly forgotten what the Conservative Party once claimed it stood for.

Their efforts have already turned Britain into the slow man of Europe. If they get their way it may well once again become the sick man of Europe.

But Lloyds is finding ways to ride that tiger for now, and it has an enviable pile of capital to keep it chipper should the weather get really nasty.

What helps a great deal is that it is big. This begs the question: How big is too big? How much is too much?

The British economy benefits from having a strong and profitable banking sector, but those benefits can be eroded when institutions are allowed to become too powerful, and Lloyds has only really just begun to flex its muscles.

The bank was very keen to make a noise about the £3.2bn it plans to invest in tech and people alongside its, erm, “investment” in its executives pockets, with the fancy share schemes it has created for them. It also wanted to point out that it increased lending to SMEs when others were tightening their purse strings.

See, we’re good for Britain!

It is notable that Metro Bank announced its maiden profit on the same day, and continues to tout ambitious expansion plans, particularly in terms of lending growth.

While some wonder whether it will be able to achieve them, particularly given the forthcoming expiry of the Govenrment’s term funding scheme that provides cheap loans to banks with the aim of getting them lending, the challenger bank appears to be thriving.

Lloyds could point to its success as evidence that there’s nothing to worry about. The whippersnappers are looking feisty, snapping up business as the big dog grows. The market works.

Watchdogs will nonetheless need to keep a very careful eye on it if it is to continue to do so.