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MARKET COMMENT
By
Carburton Street, London -- When we last looked at banking valuations in July and October of this year, we thought the sector looked attractive. As a whole the sector has moved forward some 3% since July, and stands on a historical price earnings ratio of 15 times and has a dividend yield of 3.4%. It still looks attractive for the long-term. We are now entering the close period for many of these banks and Lloyds TSB (LSE: LLOY) was the first to step forward to provide the market with an update on trading. The UK's third largest bank said it was in line to meet market expectations and should build on its "satisfactory" first half performance. Lloyds has focused on managing day-to-day operating costs and expects cost growth to be lower in the second half than the first. Revenue has also grown largely as a result of increased mortgage lending and also through the sale of life insurance and pensions. Its customer relationship programme seems to be doing well, with the intention of increasing the number of products sold per customer, and hence profitability. The only fly in the ointment lies in the uncertain economic outlook, which has affected sales of mutual funds. Surprisingly, the uncertainty did not prompt Lloyds to increase the level of bad and doubtful debts, which stands at just over 0.5% of total lending. This could be because 60% of Lloyds' lending is to the personal sector. But Lloyds has a very strong credit rating and hence any period of extended uncertainity is likely to strenghten its position against its competitors. Lloyds TSB is currently valued at a forward P/E of 14.2 and yields 4.2%, which still seems to offer reasonable value in these times of low interest rates. More on the Lloyds TSB discussion board.