Lloyds bring it on makes sense

The bank’s brave face looks low on bravado.

Banking on resilience

The custodian of the UK’s biggest consumer deposit base has signalled a bullish stance in the face of political and potential economic clouds approaching. The 5% total dividend rise is on the high side of expectations, a £1.75bn buyback is surprising in terms of timing and size. “The UK economy has proven itself to be resilient with record employment and continued GDP growth,” notes CEO António Horta-Osório, though acknowledging an uncertain near-term outlook. The contrast in tone between Lloyds and close rival RBS is clear and deliberate. Though their exposure to a potential consumption slump and deteriorating credit is similar, the larger bank is choosing a more confident approach.

Room for more

Despite net profit falling £200m short of expectations, albeit up a 24% to £4.4bn, a 4% share price rise suggests investors think Lloyds has got the balance right. Indeed, it’s balance sheet is no less solid. The core capital ratio is identical to 2017’s 13.9%, post-dividends and buyback, against Lloyds’ long-held 14% target. A ‘management buffer’ of around 1%, suggests further leeway for reimbursements. Underlying returns on tangible equity are up a percentage point to 15.5%. Reported ROE returns earmarked for shareholders at 8% continue to best High Street rivals. True, soft patches remain, like an 18% rise in soured loans totalling £937m, but investors signal unperturbedness. Lloyds’ shares steadily inched higher hours into Wednesday’s session. Buyers may have an eye to rising net interest margin and easing costs. Cost/income improved 2.5 percentage points to 49.3% with “low 40s” targeted by end 2020.

Hard hit

Brexit is chaotic enough, even before Britain’s 29^th March exit date, as a faction of Conservative MPs splits from the party a day after Labour splintered. A Westminster compromise seems as distant as ever and Brussels unmoved. If Britain crashes out, Lloyds’ solid financials are bound to take a hit. Consensus points to loan losses double the rate of 2018’s, nearer 40%. Yet even as Lloyds shares advance about 18% for the year so far, they’re still largely flat after losing 23% in 2018 and the price return since the referendum has been paltry. That suggests a large chunk of ‘Brexageddon’ has already been priced. Bank shares will still crater if Britain fails to secure a deal with the EU. But a gambit that Lloyds would remain relatively resilient is difficult to argue with.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.