On 13 February 2009, the Lloyds Banking Group (LSE:LLOY) share price crashed 32% to 59.3p. That was the day it announced the losses arising from its ill-fated takeover of HBOS were larger than anticipated.
However, its performance over the past few months suggests that investors might finally be putting the events of the 2008-2009 global financial crisis behind them.
Since the start of 2025, the bank’s share price has risen nearly 40%. It’s currently not far off its 52-week high and it’s threatening to break though the 80p-barrier.
‘Expert’ opinion
A look at analysts’ forecasts gives some clues — I think — as to why investors appear optimistic. The consensus is for earnings per share to grow from 6.3p in 2024 to 11.1p in 2027. Some of this increase is expected to come from winning more business but also from an improved net interest margin (NIM). Expressed as a percentage of interest-bearing assets, this is the difference between the amount of interest earned on loans and that paid on deposits.
The bank’s NIM is forecast to rise from 2.95% in 2024 to 3.37% in 2028. In addition, costs as a proportion of income are expected to fall from over 60% to just under 50%.
Also, the dividend’s expected to grow to 4.66p a share from its current level of 3.17p. Although payouts are never guaranteed, this implies a yield of 4.1%. The average for the FTSE 100 is 3.5%.
Of course, these are just forecasts. But the bank’s balance sheet appears to be in good shape which should help underpin the anticipated improvement in earnings. At 31 March, both loans and deposits were higher than a year earlier. And tangible net assets per share were 6.3% more.
Some risks
Despite this positive outlook, there are some challenges that the bank will face over the coming months. Due to the state of the nation’s finances, there’s speculation that the chancellor will be forced to turn to the banking industry to raise some much-needed cash. An additional baking levy or ‘windfall tax’ has been mentioned.
And the performance of the UK economy (including the housing market) is crucial to Lloyds. It derives nearly all of its income in the country, which makes it particularly vulnerable to an economic slowdown. In particular, this would increase the likelihood of loan defaults.
Also, the investigation into the alleged mis-selling of motor car finance could result in a hefty fine and/or a large bill for compensation. Under a ‘worst-case’ scenario, I believe Lloyds will easily be able to absorb the cost. After all, its latest accounts show gross assets of £910bn, including cash of £63bn. But depending on the outcome, there could be restrictions placed on the industry which might reduce future earnings.
My verdict
After considering the pros and cons, I don’t want to invest. According to the London Stock Exchange, Lloyds has the highest trailing price-to-earnings ratio of any FTSE 100 bank, suggesting others in the sector offer better value.
And those brokers providing a 12-month share price target appear to agree. The median forecast is 80p implying that the shares are fairly priced at the moment.
Despite the attractive dividend on offer, I feel there are better opportunities to research elsewhere.
