The last five weeks have been a bit volatile for Lloyds‘ (LSE:LLOY) shares, with the UK’s most popular banking stock swinging back and forth. And as a consequence, it’s now trading below the 100p psychological threshold once again.
As such, over the last five weeks, the shares are down around 6.3%. And anyone who put £5,000 to work back in late February is now sitting on £4,685.
A £315 loss obviously isn’t fun. But it’s far from catastrophic. And if Lloyds shares decide to bounce back, investors who hold on through the storm could end up back in the black with a potentially chunky profit.
So the question now becomes, should Lloyds’ investors hold or even consider buying more shares today?
What’s going on with Lloyds?
A lot of the weakened sentiment surrounding this bank stems from the ongoing conflict in Iran and the implications the war has for the British economy. Don’t forget, Lloyds’ performance is strongly tied to the UK’s economic landscape. And another factor dampening investor mood is the recent kick-off of the FCA’s motor finance redress scheme.
Yet, for long-term investors, geopolitical crises are ultimately a short-term challenge. And as for the motor financing situation, Lloyds has been preparing for compensation claims for over a year now, setting aside £1.95bn of capital to cover any claims.
In the meantime, with management implementing structural hedges, the bank’s set to benefit from higher interest rates regardless of what the Bank of England gets up to until 2027.
Subsequently, most institutional analysts remain fairly bullish, with 12 out of 19 recommending the stock as a Buy or Outperform, and only two telling investors to Sell.
Paradoxically, some analysts are even predicting the potential for a sudden share price surge triggered by the FCA’s redress scheme. After all, if total compensation claims come in lower than £1.95bn, the excess gets re-added to Lloyds’ bottom line.
What to watch
As previously mentioned, not all analysts are convinced of a buying opportunity here. And research from the team of experts at Shore Capital does raise some valid risks for investors to consider carefully.
Structural dependency on the UK economy means Lloyds could be directly caught in the crossfire of an oil & gas shock-induced recession. And if the situation evolves into an extreme stagflationary environment, the bank could see a wave of impairment charges emerge across its loan book.
Even if this scenario doesn’t emerge, there’s also the question of rising competition within the British mortgage market itself. With plenty of brokers for home buyers to pick from, profit margins on new loans could end up getting squeezed even with structural hedges in place.
So what should investors make of all this?
The bottom line
The overall consensus from institutional analysts is positive. But there’s no denying that Lloyds faces some substantial near-term headwinds that could see its shares take a tumble.
Personally, while I don’t think the business is heading for catastrophe, I think investors may be better served looking at other UK bank stocks which have a more geographically diversified revenue stream.
