£10k invested in Lloyds shares one month ago is now worth…

Investors appear to be losing interest in Lloyds shares just as they start rising after years in the Dow Jones. Harvey Jones thinks the long-term case is still strong.

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Investors love Lloyds (LSE: LLOY) shares. The FTSE 100 bank regularly features among the UK’s most traded blue-chips. And they’re finally being rewarded for their loyalty, with the Lloyds share price jumping 47% in the last year.

Yet everything’s relative, and Lloyds investors can’t help looking over their shoulders at rival FTSE banks Barclays and NatWest, which have skyrocketed 99% of 93% respectively over the same period.

Created with Highcharts 11.4.3Lloyds Banking Group Plc + Barclays Plc + NatWest Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Lloyds is trailing because it’s been swept up in motor finance mis-selling scandal, which risks turning into the next PPI. That cost Lloyds a whopping £23bn in compensation claims, more than any other bank.

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The FTSE 100 bank has started 2025 well

Now it’s on the hook again, thanks to its Black Horse division. Some reckon it could have to pay £4.2bn in compensation for hidden commission payments on car loans. The final bill could be even higher. Barclays and NatWest have mostly avoided the hit. Why always Lloyds?

Yet suddenly investors aren’t quite as worried, thanks to chancellor Rachel Reeves. She’s working to block car loan firms from having to shell out huge sums in compensation, fearing it could bankrupt smaller lenders and undermine wider UK competitiveness. That would send worrying signals to the international investors she’s now desperate to cultivate.

It’s a controversial step, but with the economy under pressure Reeves doesn’t want another compensation free-for-all. There’s contagion risk too, as the commission principle, once established, could spread to other sectors, such as insurance. The total bill could be astronomical, as industry lobbyists have no doubt been warning.

Reeves has given Lloyds a further potential lift by supporting Financial Conduct Authority proposals to relax mortgage lending rules, in a bid to boost home ownership and get Britain moving. This includes simplifying lending criteria and reassessing affordability tests, which could boost Lloyds as the UK’s biggest lender.

Reeves may also ease bank ring-fencing rules, which protect consumer deposits by separating lenders’ retail and investment banking operations.

We don’t know whether any of this will happen, or whether it’ll make a difference. But it’s lifted the mood, especially on Lloyds. Since I hold the stock, I’m delighted.

I’m buying mostly for the dividends

An investor who put £10,000 in Lloyds just a month ago would have seen the value of their stake rise 15%. Today, they’d have £11,500. They can also look forward to some dividends too, with Lloyds shares forecast to yield 5.25% in 2025.

Yet there’s still plenty to worry about, as the UK potentially slips towards recession, interest rates remain high, and consumer sentiment low.

Even if the Bank of England does cut base rates, it could prove a mixed blessing. That would squeeze net interest margins, the difference between what banks pay saves and charge borrowers.

So much for the news flow. Ultimately, I treat it as background music. Unless something dramatically changes, there will always be a place for Lloyds shares in my portfolio. I plan to hold them through thick and thin, and re-invest every dividend I get until I reach retirement, when I’ll draw them as income. With luck, I’ll be holding Lloyds for life.

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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.

Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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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