Should I Invest In Lloyds Banking Group PLC Now?

Last week’s news that UK-focused financial services and banking company Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is polishing up its TSB banking business for flotation continues the firm’s post-financial-crisis restructuring programme. Like other banks, Lloyds finds itself arm-locked into divestments like this by the European Commission.

Shrinking assets

Enforcing banking competition on the high street by making big banks divest assets is a wrist-slapping device that helps regulators emasculate the banking leviathans of yore. Make no mistake about it, assets are shrinking at Lloyds, and shareholder dilution compounds the negative effect on asset-per-share figures every time the firm issues new shares to raise funds. The implication is that forward earnings per share will shrink from past glories too. There will be no quick return to the heady earning days like those in the noughties.

Here’s Lloyds’ recent net asset record:

Year to December 2009 2010 2011 2012 2013
Net asset value per share 100.88p 61.67p 60.44p 54.08p 49.35p

The banking industry suffers with capital starvation, and with many past big earning lines of business no longer tenable, forced restructuring should help firms like Lloyds raise the funds to get onto a firmer financial footing and to meet regulators rising capital base requirements.

The future looks dull

One scandal after another in recent years reveals the extent of greed-driven bad practice once rife in the banking industry. Regulators now want their pound of flesh from Lloyds and its peers, and breaking up the power of big banking institutions and introducing greater competition is one tool they seem to be deploying. There’s also pressure for banks to scale down risky investment operations and racy business lines.

In today’s world it takes a big leap of imagination to see high-street banks returning to the apparent conservative, socially responsible and respectable practices of yesteryear, but there does seem to be some drift in that direction. Banks like Lloyds appear to be restructuring and returning to basics.


At a share price of 78p, Lloyds Banking Group’s forward P/E rating is sitting at just under eight, with City analysts forecasting 8% earnings’ growth in 2015. The forward dividend yield is running at almost 4.2%.

Given the cyclicality of the banking industry and uncertainties surrounding Lloyds’ ongoing restructuring, the valuation looks fair. I reckon share price appreciation for Lloyds shareholders could prove elusive.

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Kevin does not own shares in Lloyds Banking Group.