What You Were Selling Last Week: Lloyds Banking Group PLC

Lloyds Banking Group PLC (LON:LLOY) has made good progress, but its not out of the woods yet.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

LloydsOne of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with some ideas for investments that may be past their prime

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service were selling last week, and what might have made them decide to do so.

A rosy picture

Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has been doing pretty well, as UK banks go. It’s dealt with its legacy of impairments diligently enough, reducing them from £1.81bn in the first six months of 2013, to £758m in the first six months of this year. But it’s been cautious enough to warn that the figure may yet creep back up towards £1bn, despite some analysts suggesting that there’ll actually be a further reduction in the second half.

It’s also been on track to resume paying a dividend, and is still in discussions with the Prudential Regulation Authority (PRA) about getting the necessary permission. Reinstatement of the dividend would send a clear signal to the market that Lloyds has really got its act together, which could push its share price back up to levels last seen at the start of 2014 and beyond.

And Lloyds is certainly taking some bold steps to achieve cost savings. Whilst it’s never nice to present job cuts as “good news” — it’s not for those affected — the laying-off of 9,000 staff and closure of 200 branches will make a big contribution to Lloyds’ target of £1bn of cost savings per year by the end of 2017.

So, given what seems to be a rosy picture of a bank that’s fast returning to health, and with good prospects for the future, what might have persuaded enough people to sell Lloyds last week to put the bank in the number three spot in our latest “Top Ten Sells” list*?

A tremendous run

Well, investors in Lloyds have enjoyed a tremendous run. Over the past 3 years, Lloyds’ share price has risen 125%. And anyone lucky enough to have bought when Lloyds share price dipped under 22p, in November 2011, has seen their stake more than triple in value.

So perhaps people were selling last week to lock in some of their gains, rather because of any fundamental concerns about Lloyds’ prospects.

Stress about stress tests

That said, the sales may have been uncannily prescient, with news emerging this week that Lloyds was the worst performing UK bank in the recent European banking stress tests, with a capital ratio that’s only just above the 5.5% minimum that the European Banking Authority (EBA) requires. The bad news has seen Lloyds’ share price slide around 4% so far this week.

And there could be worse news to come, when the results of the Bank of England’s own stress tests are revealed in December. As one of the largest UK mortgage lenders, Lloyds could find the Bank of England’s stress tests unduly demanding, as they will require provision for even greater property losses (namely, a 35% peak-to-trough fall)  than the EBA ones did.

The ghost of PPI

Any decision from the PRA about whether Lloyds can start paying  dividend again will almost certainly be postponed until after the results of the Bank of England’s stress tests are out — and unless Lloyds gets a “pass”,the PRA’s decision may not be the one that’s hoped for. 

And despite Lloyds’ apparent good progress on impairments, PPI has returned to haunt it (appropriately, just before Halloween). The bank announced this week that it has had allocate an additional £900m to PPI compensation payouts, bringing its total provision for PPI to more than £11bn. And the news obviously raises the spectre that even more money may need to be found to meet PPI compensation claims in the future.

So, with the inevitable benefit of hindsight,  maybe last week was good time to have realised some profit from Lloyds.  

But, of course, whatever anyone was doing last week, only you can decide whether Lloyds Banking Group is a sell right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Wallis has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

* based on aggregate data from The Motley Fool ShareDealing Service.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »