Does Lloyds Bank still back Britain?

The boss of Lloyds Bank should probably have a “We’re Backing Britain” t-shirt on under his suit and tie.

And Union Jack boxer shorts.

The bank’s fortunes are tied to the UK because so many Brits – about 28 million of us – have a financial relationship with it, a mortgage, a bank account or a credit card.

So it’s a proxy for the UK economy. This means:

a) It has a vested interest in talking it up
b) It has plenty of data to make its case

Even if times look tough, which they do now, Lloyds is very good at saying why it really isn’t that bad, that we have plenty going for us.

It operates as a counter to hysterical media commentary that tells us we have never had it so bad, that the nation is bankrupt, that everyone who can is moving to Spain (we aren’t, they aren’t).

Lloyds reports half-year results tomorrow with City analysts expecting bad debts of about £590 million and profits of £3.3 billion.

That should be comfortably enough to keep the dividend on track, though eyebrows will be raised if the impairments – the bad debts – are much worse than expected.

Charlie Nunn, the likable CEO, is good at talking us up. He made his case in the FT the other day in a piece headlined The strong grounds for optimism for the UK economy.

He likes the government’s commitment to infrastructure spending, and his own Business Barometer suggests confidence is returning.

He reminds us we have world-class universities, and leading life sciences, clean energy and creative industries. We really are in a lot better shape than we tend to think.

One possible sour note, and a PR issue perhaps, is that Scottish Widows, Lloyds Bank’s asset manager, has just decided to move out of the UK stock market.
It is slashing its exposure to UK shares, from 12% to just 3% in some funds.

They think this will be better for the pension funds and the shareholders, so perhaps that’s fair enough. But an act of patriotism it is not.

(Also, they might be wrong. If Charlie Nunn is right about the economy, surely UK equities would benefit.)

Another issue is the end of bank ring-fencing, rules set up after the 2008 financial crash to ensure banks kept a certain amount of cash in the UK.

Nunn is among those who helped persuade the government these rules were outdated.

But, if there is less money locked in the UK, won’t that necessarily mean there is less capital backing UK mortgages, therefore fewer mortgages, therefore more expensive mortgages?

It is in everyone’s interests that Lloyds does well. Is Charlie Nunn with us or not?

He might have to explain himself tomorrow.