We poor Lloyds Banking Group (LSE: LLOY) shareholders are suffering these days. Just as it was starting to pick itself up from the bottom of the Covid-19 crash, Thursday came along and the Lloyds share price crashes 8% again. At 32.2p at market close, it’s not so bad for those who managed to buy right at the 25.7p bottom.
But that’s little comfort for those of us who have held for several years and more. You know, the way long-term investors are supposed to.
The FTSE 100 itself dipped 3.7% on Thursday, so the fall wasn’t entirely down to Lloyds. But there was bad news in the form of yet another banking penalty handed out by the Financial Conduct Authority (FCA). The FCA has judged Lloyds to have treated hundreds of thousands of mortgage customers unfairly between 2011 and 2015, and has fined it £64m as a result.
Mortgage fine
The FCA slated the inflexible approach taken by banks towards customers falling behind on their mortgage payments, with some being put into repayment plans that they could not afford.
But how bad is this news really? Well, I seem to be getting into a habit of suggesting things for Lloyds are not as bad as they might seem. And the same is true again here. Lloyds had already set up a redress scheme in 2017 covering more than half a million customers. It cost £300m, and all those who were charged fees at the time have had them refunded.
Lloyds says it doesn’t have to do any more now. And compared to the cost of the redress, a new £64m hit perhaps doesn’t seem so bad.
Wider troubles
The Lloyds share price weakness is about more than just these one-offs that come along, mind. The big thing holding banking shares down at the moment is the UK economy, which does not look good. On Friday, the Office for National Statistics revealed that the economy slumped by 20.4% in April.
But that’s just one month, likely to be the worst. The decline for the three months from February to April came in around half that, at 10.4%.
EU departure talks are adding to the pressure too, as the two sides seem as far apart as ever. And the UK government is sticking to its insistence that it will not extend the end date for talks, despite the Covid-19 crisis. This is not helping bank share prices.
Lloyds share price outlook
Does that sound gloomy enough for you? If it does, then you might want to join me in my continuing opinion that the Lloyds share price is too low. I like to buy when we’re at a time of maximum pessimism, and that really does look like now.
The reasons for the Lloyds share price weakness are solid, certainly. But during times like this, markets almost invariably punish shares too harshly. And those shares almost always come storming back when the crisis is over.
Unless Lloyds goes bust, I still think we’ll see significant gains in a few years time. And with Lloyds’ balance sheet looking firm, I see no chance of a bust.
