The tide is finally turning for FTSE 100 banking stocks like Lloyds Bank (LSE: LLOY). After what seemed like quite a wait to stock watchers like me, the Bank of England’s Prudential Regulation Authority (PRA) gave UK’s banks the go-ahead to re-start dividend payouts earlier this week. I think this could give a fillip to the Lloyds share price, though it hasn’t so far.
The Lloyds share price sees fluctuations
In fact, the bank’s share price has fluctuated a great deal through 2020. It dipped sharply earlier this year after it suspended dividends following the PRA’s advice. It started recovering last month as the broad stock market rally followed Covid-19 vaccine news. I last wrote about LLOY at the start of December, when it had risen 27% since the end of October.
However, it has pulled back since. I think this is at least partly due to ongoing uncertainty about Brexit. Prime Minister Boris Johnson has most recently said that there’s a strong possibility that a trade deal with the EU won’t happen. The Brexit deadline is pencilled in for the end of 2020, and we are almost mid-way through December already with no deal in sight.
Brexit impact
This can drag down the Lloyds share price more than anything else. Unlike its other FTSE 100 peers such as HSBC or Standard Chartered, LLOY gets much of its business from the UK. There could be short-term economic pains, at the very least, from a no-deal Brexit. These will be compounded by the damage already caused by the Covid-19 crisis.
However, I’m still holding out hope for an amicable solution to the current UK-EU impasse. After all, just earlier this week, the mood was very different with high expectations of a deal. If after all the edge-of-the-seat Brexit action, a deal is signed, I think the stock markets will rally even more.
And guess who’ll benefit from a FTSE 100 rally even more? The Lloyd share price of course. I expect that the share price will finally catch up to the dividend good news, which presently has a Brexit cloud over it.
What’s next for LLOY?
I reckon it can cross at least 50p, the level it was at in the pre-pandemic time period. The next question of course is, will I buy LLOY if that happens? I’d like the situation to play out a little is my short answer.
Even with a Brexit deal, there’s still much up in the year. First, a theoretical go-ahead for dividends is one thing, but when will the bank actually pay dividends? Next, LLOY’s leadership has recently undergone change. I want to see what changes (or not ) the new CEO, Charlie Nunn, brings when he joins next year. Finally, I’d wait to see how the economy will recover in 2021 because that has a direct effect on LLOY’s performance.
The takeaway
Right now, however, the bank’s an interesting wait-and-watch stock. Not one to buy for me.
