Lloyds Banking Group reported strong fourth-quarter results, despite provisions for motor finance probe. Guidance for 2026 is positive, with an expected return on tangible equity above 16% and additional structural hedge income in the coming years. Market rates suggest continued growth until at least 2027. Fair value estimate raised to GBX 97 per share.

Operating expenses grew 3% while net income grew 7% in 2025. Credit cost was good at 17 basis points. Lloyds anticipates improved capital generation, with £1 billion in additional structural hedge income in 2026 and £1.5 billion in 2027. Narrow moat rating remains unchanged.

Competitive dynamics may offset some of the structural hedge tailwind by 2028. Return on tangible equity expected to be around 15%, up from previous estimates. Operating expense savings and structural hedge income contribute to improved outlook for the bank.

Bears argue that Lloyds’ organic value creation is diminishing. Operating expense savings expected to lead to peak returns on tangible equity above 18% by 2028. Market dynamics and competitive pressures may impact the bank’s future performance.

Read more at Morningstar: Lloyds Earnings: Strong Guidance for 2026 and Structural Hedge Point to Improving Returns