With the Lloyds Banking Group (LSE: LLOY) share price only around 55p, at the time of writing, am I mad to think about it reaching £1?
Well, maybe. But if I didn’t think it could reach that level some day, I wouldn’t have bought any. Now, I see pretty much no chance of getting 100p each for my Lloyds shares in 2025, or in 2026, or any time soon.
But I do see events in 2025 that could help push Lloyds and other bank shares in the right direction, and that’s what I want to think about today. And, you know, it’s mostly about hoping that the worst won’t happen.
Avoiding a car crash
Remember the old payment protection insurance (PPI) mis-selling scandal? Penalties from that cost some of our big banks dearly. And right now, we’re up against something similar over car loans.
The Financial Conduct Authority’s (FCA) looking into claims of secret backhanders, sorry, commissions, paid to car dealers.
Lloyds has so far set aside £450m to cover its potential part in the redress. But I don’t think the regulators are going to be in too good a mood after all the bad behaviour we’ve seen from banks in the past couple of decades. And it could be a fair bit worse.
Lloyds needs to get past this hurdle, and at least get the uncertainty of the degree of pain out of the way.
Interest rate pain
Lloyds is the UK’s biggest mortgage lender. And right now, high interest rates are helping keep its lending margins healthy. For the nine months to September, Lloyds reported underlying net interest income of £9.6bn. Even that was down 8% as the bank’s net interest margin (NIM) dropped to 2.94%. And to highlight how important it is, other underlying income was a lot lower at £4.2bn.
How many Bank of England rate cuts might we get in 2025? Two, three, maybe four?
While we fear the possible negative effect on Lloyds, I don’t see it as being all bad. Lower rates should stimulate demand and could get a lot more people back on the housing trail. So lower margins could be offset by higher volumes.
The economy’s everything
Economic sentiment’s down in the dumps. The UK economy shrank for the second month in a row in October. And recruitment firm Reed has even suggested we might be in for a recession, as it saw job vacancies fall 13% between October and November.
To sum up what I think Lloyds shareholders should hope for in 2025? It’s to get the car loan thing out of the way, hopefully with not too much pain. And then see how interest rates affect the longer-term business outlook, with hopefully some economic sun on the horizon.
And just to reiterate, I’m not kidding myself that Lloyds shares could reach £1 in 2025. In fact, I can see a rocky year ahead. But in 10 years? Maybe.
Meanwhile, I’ll keep taking the dividends.
