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Will Lloyds Bank’s share price recover?

Scene depicting the City of London, home of the FTSE 100
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Since the financial crisis, the Lloyds Bank (LSE: LLOY) share price has been a perennial underperformer. When it was recovering from the crisis, the bank was having to deal with the PPI scandal and Brexit. After that, the coronavirus pandemic bought the country’s economy to its knees.

At one point, there was even speculation a major bank could fail. 

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To give the company its credit, management has been trying to stimulate growth and improve the share price. Lloyds has launched a new wealth management business with Schroders and bulked up its credit card business by acquiring MBNA during the past decade. 

Unfortunately, these initiatives have failed to convince the market that the company is moving on. As a result, the stock is trading at the same level today as it was in July 2011. In fact, if an investor had bought shares in Lloyds just after Lehman Brothers collapsed in September 2009, they would still be underwater. At the end of September 2009, the stock was changing hands for more than 100p. All of these figures exclude dividends. 

Considering this dismal performance, some investors may be wondering if the Lloyds Bank share price will ever recover. That is something I have been contemplating as well. 

Failing to appreciate progress

Even though the bank is in a vastly better position today than it was in 2009, the market seems to be failing to appreciate the group’s progress.

However, the one thing that has not changed over the past decade is the interest rate environment. Interest rates have been held near-zero since the financial crisis. This has curbed the amount of money banks like Lloyds are allowed to charge borrowers.

At the same time, regulators have forced UK-based banks to ring-fence their retail operations. This initiative was designed to improve the stability of these financial institutions. But it has also unleashed a massive wave of capital into the market-chasing business. As such, increasing competition in the sector has had a significant impact on interest rates. 

A catalyst for the Lloyds Bank share price

It looks as if this environment could be about to change. There are rumours that the Bank of England will increase interest rates over the next six months. This would have a positive impact on the banking sector as a whole. It could also allow Lloyds to raise interest rates on debt products, boosting overall profitability. 

I think this could be the catalyst that finally drives the Lloyds share price higher. Of course, there is no guarantee interest rates will move higher over the next six months. Neither is there any guarantee that the bank’s peers will stop chasing growth at all costs. If competition continues, Lloyds may not be able to increase rates, and profits would remain under pressure. 

Despite these risks, I would be happy to buy a speculative position in the stock for my portfolio as a recovery play. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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