How Much Has Lloyds Banking Group PLC Cost Taxpayers?

We’re doing better than you might think with Lloyds Banking Group PLC (LON: LLOY).

| 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.

So, Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) cost taxpayers billions?

That’s the common wisdom — that the government threw all that money into the pit created by greedy bankers who brought the industry to its knees, and it’s a cost we just have to bear.

It’s true that the money amounted to a pretty big sum — it’s not quite up to the staggering £46bn so far pumped into fellow struggler Royal Bank of Scotland, but the total spent on Lloyds amounted to the not-inconsiderable sum of £21bn.

UK taxpayers ended up owning 43.4% of Lloyds for that £21bn. So what did we get for it?

LLOYLosses

We got a couple of tough years for one thing, with Lloyds reporting a pre-tax loss of £3.54bn in 2011 — peanuts compared to RBS’s record £24.1bn loss in 200, but pretty substantial. And back in 2009 in the depths of the crisis, although Lloyds recorded a pre-tax profit of £1.04bn, that did come after suffering an effective loss of £24bn on bad loans — largely commercial property loans that came with Lloyds’ purchase of Halifax Bank of Scotland (HBOS).

The bank went on to further losses in 2012, but was actually some way ahead of RBS in recording a pre-tax profit (albeit of of a modest £415m) in 2013.

Bright future

Prospects for the next two years are already looking good, with a pre-tax profit of around £5.2bn forecast for 2014, rising to £5.7bn for 2015. Dividends are on the way back too — there’s a modest 1.9% yield expected this year, but that should rise to 4.2% next year.

The share price? Up more than 60% over the past 12 months, to the 80p level today — and over the past two years it’s almost doubled. So what does that leave us with?

The government sold off a chunk of its Lloyds holdings last year, raising £3.2bn, and is currently left with a 32.7% stake. With Lloyds having a market cap of £56.9bn today, that’s worth £18.6bn — and we’re actually in profit with a total value of £21.8bn.

We did well

But that’s not all. Though the shares have recovered, they’re still only on a forward P/E of around 11, and the price looks likely to rise further – as long as those forecasts prove accurate.

The FTSE’s long-term average P/E is about 14, and I’d expect Lloyds to command that kind of valuation before much longer — if it happens, we’ll end up sitting on a total of about £27bn, which really isn’t too bad for our part in saving the country’s banking industry.

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.

Alan does not own any shares in Lloyds or RBS.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »