Lloyds shares hit stall speed
After outperforming much of the wider banking sector in 2013, Lloyds Banking Group shares have plateaued somewhat over the last six months as the bank looks to gear up for the disposal of the remainder of the government’s stake in the bailed out lender.
From the lows in 2012 the shares had more than doubled raising questions as to how much upside there could be left in a rally that serves as a significant recovery story, but may well have run its course.
This appears to be borne out by the performance seen since the beginning of this year. The shares have slipped back from highs of 86p to levels just above 70p where they appear to be stabilising for the moment.
When the bank last reported at the end of Q1 revenue came in a £4.9bn, and an operating profit of £1.8bn, but that doesn’t include the possibility of further provisions being announced later this week.
Lloyds has already set aside over £10bn worth of provisions over the last few years so yet more costs aren’t likely to be welcomed.
Expectations for this quarter are for revenues of £4.67bn and an operating profit of £2.29bn.
We’ve also seen some of the froth come out of the housing market in recent weeks. Given that Lloyds Banking Group is also one of the biggest mortgage providers in the UK the recent tightening of mortgage standards may well have hit its lending in the April to June period.
The offloading off its TSB branches may well also have affected the quality of its loan book as it passed on some of its better quality loans to the new bank to ensure the issue got away cleanly.
Compared to its peers Lloyds appears to be going back to being a fairly boring bank with a fairly low key investment banking division, and has just concluded a $370m deal over alleged Libor rate rigging with UK and US regulators.
That isn’t to say that it is completely free from the problems of the past given the announcement of yet another investigation into dubious practices, this time about misleading letters to customers purporting to be from lawyers to get them to repay their debts.
The bank is also being investigated in respect of potential FX price rigging so these could well also be additional headwinds, though any outcome here is not expected until 2015.
As we head towards May 2015 another factor worth bearing in mind is that the UK government may well look to pay down the remainder of its 25% stake in the bank as politics comes into play with the prospect that the banks could well become a political football between a populist Labour party keen to punish the banks for their behaviour over the past few years.
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