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Are Lloyds shares the best stock market crash bargain to buy now?

The announcement that all the major UK banks wouldn’t be paying dividends for this year no doubt filled income investors with dread. In fact, around half of the companies in the FTSE 100 have followed suit in efforts to shore up cash. This spelled bad news for Lloyds (LSE: LLOY) and consequently, sent its share price tumbling even further. But with the company’s valuation reaching an eight-year low, could the shares be among the best stock market crash bargains to buy now?

Share price woes and a rough ride

Those unfortunate enough to invest in February 2007 will have lost around 92% of their initial investment if they’re still holding today. This illustrates the frankly disastrous performance of the Lloyds share price over the long term. As of today, the bank’s shares trade at around 30p, down from 64p in December 2019.

When the major sell-off in equities got under way, Lloyds was hit particularly hard. Its share price tumbled by 45% in the depths of the crash and has failed to recover over recent weeks. As of today, the shares are still down by 45%, trading with a P/E ratio of 8.9.

Factors that can be attributed to Lloyds’ lacklustre performance over the years include the 2008 financial crisis, the mis-sold PPI scandal and now, the coronavirus pandemic. Clearly, it’s not been an easy ride for the bank.

What’s more, rock-bottom interest rates and the rise of challenger banks continue to pose a threat to Lloyds’ future prosperity. For example, according to the Financial Times, each 0.25 percentage point reduction in the bank rate knocks almost £150m from Lloyds’ annual net interest income. And the growing popularity of e-banks such as Monzo, Revolut and Starling could significantly damage the business of traditional high-street banks.

Fortunately, the firm’s balance sheet has proven strong enough to withstand the seemingly relentless pressure thus far. Lower operating costs and the cancellation of the dividend payment have both helped in this area. So, how do things look for Lloyds moving forward?

What does the future hold for Lloyds shares?

After a relatively impressive performance prior to the outbreak of Covid-19, things were beginning to look up for Lloyds. Without the pandemic, I reckon the bank could have enjoyed a profitable 2020. Inevitably, this would have kickstarted share price appreciation once again. Nevertheless, here we are today. But it’s not complete doom and gloom.

Encouraging news surfaced at the beginning of the week concerning the bank’s intention to extend its push into wealth management and insurance. This should help Lloyds diversify its sources of income as it braces for low interest rates over the long term.

Additionally, a market-leading cost-to-income ratio means the bank’s capital position is much stronger than in previous decades. With that in mind, it could feasibly return to dividend payments in a year or two, provided the economy continues to recover.

As such, Lloyds shares could truly be among the best stock market crash bargains to buy now, I feel. The bank’s share price may be depressed today, but I don’t believe it will stay that way. As the outlook for the UK economy improves over the long term, I reckon Lloyds could be a huge beneficiary.

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Matthew Dumigan 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.