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Stock market crash: 3 reasons why I’ll ignore the Lloyds share price for my ISA!

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The Lloyds (LSE: LLOY) share price remains perilously close to the eight-year troughs below 30p ploughed in March. Dip-buying has been muted as investors ponder the economic storm already battering the UK economy. There are a number of reasons why I myself won’t be buying the FTSE 100 company for my own personal ISA, a few of which I discuss below.

The rise of the challengers

Lloyds’ share price has shaken lower on expectations of a painful and prolonged economic downturn in the UK. The prospect of sinking revenues and soaring bad loans at this most-cyclical of stocks has exploded. The FTSE 100 bank’s woes will be compounded by the bloody conflict it’s fighting with the rising number of challenger banks too.

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The growth of e-banking over the past decade has helped the digital-only operators like Starling Bank and Monzo balloon in popularity. They have built their operations from the ground up, meaning that the services and apps they offer are at the cutting edge of what customers want. And studies show that the challengers are catching up, or even beating, the established banks in certain areas of business. And the threat is only going to grow and grow.

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A weak housing market

A weakening homes market poses serious problems for Lloyds too. Sure, Zoopla data last week showed that the number of new property sales rocketed 137% since lockdown restrictions were eased. It’s likely that buyer interest will cool in the months ahead, though, as unemployment rises, job security falls and pay growth grinds to a halt.

This is particularly problematic for Lloyds. It is the UK’s largest lender by some distance — it lent a whopping £13.8bn to first-time buyers last year — and therefore profits from its mortgage operations are critical in driving its overall bottom line. The bank’s huge mortgage customer base leaves it at the mercy of a flood of expensive home loan defaults in the near term and beyond too.

Lloyds’ ditched dividends

Low interest rates over the past decade kept a lid on Lloyds’ earnings growth. But the fruits of its self-help drive following the 2008/09 financial crisis, allied with the decision to hitch its wagon to less-risky banking activities, gave it the strength and the confidence to pay big dividends.

The bank’s progressive policy is in tatters following the Covid-19 outbreak, though, with dividends being sacrificed for this year in line with Bank of England demands. But what is the likelihood of shareholder payouts being reinstated in 2021? Not high, in my book.

With interest rates heading lower, revenues expected to slump and bad loans poised to surge, profits at Lloyds could remain under pressure for some time yet. The bank is already highly leveraged and this will also curtail its capacity to restart its dividend policy.

So why take a chance with Lloyds? Sure, its share price may still be close to trading at multi-year lows. But there are plenty of other FTSE 100 bargains that I’d rather buy for my own ISA, stocks with much better growth and dividend prospects than The Black Horse Bank.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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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