Fortunes finally appear to be smiling on Lloyds Bank (LSE: LLOY). At least they are smiling on the Lloyds Bank share price, which has stayed above the 30p level since November 9. No surprises here. The FTSE 100 index also started rallying on the day, on hopes of a successful coronavirus vaccine. It crossed 6,000 and has stayed above those levels since, too.
I expect that if the collective investor mood continues to remain buoyant, so will the Lloyds Bank share price. 2020 has been particularly destabilising for LLOY. Like all banking stocks, it thrives during boom years and vice versa. However, if the pandemic finally ends in the coming months and the economy gets back on track, things could turn a corner for the bank. ‘Could’ being the operative word here.
Things are looking up
We don’t yet know how bad the economic damage will be once policy measures keeping many businesses afloat are withdrawn. We can take heart from the fact that so far the turnaround has been pretty sharp. UK’s GDP grew by 15.5% in the July-September quarter. While this was to be expected as the lockdown was lifted, I think it’s instructive to think counterfactually as well — what if GDP growth hadn’t bounced back? My point being, that so far the economy isn’t looking altogether bad even with risks ahead.
Lloyds Bank’s third-quarter results aren’t disastrous either. Importantly, it’s still a profitable enterprise, not something that can be said for all companies hurt by Covid-19. The most recent example being easyJet, which just reported a loss. Taking potential for economic steadiness and its own performance into consideration, I think it’s quite possible that the Lloyds Bank share price will stay above 30p in the foreseeable future, barring any other untoward developments.
The next big question for the Lloyds Bank share price
The next, and possibly more important question, however, is this: Can it continue to rise much further from here? I think that’s unlikely. Even if the economy starts recovering in 2021, I expect that credit offtake will still be limited and bad debts are likely as a result of the challenges of 2020 as well. Both are bad news for the Lloyds Bank share price. In fact, even when the economy was relatively robust in recent years, the share price trend was weak. I don’t see any reason for high hopes now.
But one particular situation, if it develops right, can be great news for Lloyds Bank. Before the end of 2020, the Bank of England (BoE) is expected to give a verdict on whether banks and insurance companies can pay dividends. If the BoE does greenlight them, the Lloyds Bank share price could rally. But I reckon that rally will be a short-term one. As a long-term investor, I think a high dividend yield is the best I can hope to get from the Lloyds Bank share. I’d wait for BoE’s call, and then make my decision accordingly.
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Manika Premsingh owns shares of easyJet. 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.