LLOY Lloyds Banking Group Plc

By Max Colchester 

LONDON-- Lloyds Banking Group PLC said net profit fell sharply in the first quarter hit by restructuring charges and the cost of buying back high interest paying bonds.

The British retail bank, which is about 9% owned by the U.K. government, said Thursday revenue dropped 1% to GBP4.4 billion ($6.4 billion) in the quarter. Profit fell 44% to GBP531 million in the first three months of the year. Shares fell 2% in morning trading in line with other British banks.

Like other lenders, Lloyds has been struggling as low interest rates eat into profitability. The bank said it was accelerating current cost-reduction plans, while ratcheting back mortgage lending as the U.K. buy-to-let mortgage market starts to cool. Lloyds will review its three-year strategy, launched in 2014, should it hit cost-saving targets ahead of time, said Chief Financial Officer George Culmer.

Meanwhile the bank aimed to "continue to have a nice stable profit as we move forward," Mr. Culmer said. The lender took a GBP790 million hit buying back high interest paying bonds it issued to investors during the crisis. This, however, helped improve the bank's closely watched net interest margin, the difference between its cost of borrowing and the price at which it lends, to 2.74%. Market volatility also hit insurance income. No extra funds were put aside to compensate customers who were sold insurance products they didn't need.

Underlying profit, which strips out a series of one-off charges, came to GBP2.1 billion, down 6% compared with the same period a year earlier.

In January the U.K. government postponed a planned sale of its shares in the 9% state-owned lender, citing ongoing turmoil in financial markets. The shares continue to trade below the government's average buy-in price. Mr. Culmer wouldn't speculate what the government would do with the remaining stake. "What they do is unto themselves," he said.

Write to Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

April 28, 2016 03:45 ET (07:45 GMT)

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