Lloyds Bank LSE:LLOY is one of the most followed stocks in the FTSE and current price action has put the company back in the spotlight. It is one of the UK’s largest financial services organisations, with 30 million customers and 65,000 employees.
Lloyds has long been the bellwether for the UK economy due to its large focus on the UK domestic markets and a product range only offering customers more standard services and less exotic or investment-based products. This approach is both a gift and a curse depending on the overall view of the UK economy.
Being the most domestically focused bank in the UK you will always see bigger fluctuations on the share price in relation to UK economic data and the outlook on the economy overall.
Bank’s origins
The origins of Lloyds Bank date to around 1765, when button maker John Taylor and iron producer and dealer Sampson Lloyd set up a private banking business in Dale End, Birmingham. The symbol adopted by Taylors and Lloyds was originally the beehive. The black horse logo came into play in 1677, when Humphrey Stokes adopted it as sign for his shop. Stokes was a goldsmith and “keeper of the running cashes” (an early term for banker) and the business became part of Barnett, Hoares & Co. When Lloyds took over that bank in 1884 they kept the logo.
Retail division
The retail division is a leading provider of current accounts, savings, credit cards, loans, mortgages, insurance and motor finance. The retail side includes brands including Lloyds Bank, Halifax and Bank of Scotland and serves millions of customers.
Commercial banking division
The Commercial Banking division primarily focused on UK businesses and those with strong links to the UK. They provide customers with the support they need to help them grow, manage risk and enhance efficiency.
Full Year Figures 2021
Lloyds reported full year earnings on Monday. Here’s what you need to know:
- Profits of £6.9 billion vs £7.2 billion expected
- £2 billion share buyback & 2p dividend
- £1.3 billion fraud compensation
- Stock trades 9% lower, although Russia, Ukraine fears are pricing in as well
Expectations were high ahead of earnings from Lloyds, the stock was trading up almost 10% so far this year, before the release.
Breakdown
Full year profits came in at £6.9 billion, up almost fivefold from 2020’s £1.2 billion but below the £7.2 billion forecast.
A boom in mortgage demand saw the mortgage book soar from £16 billion to £293.3 billion. Lloyds, like NatWest, was well placed to capitalize on the booming house market, as people looked to re-locate. Brits re-assessed their housing and space needs across the pandemic, and work from home also gave people more freedom over where to base themselves.Net income rose 9% to £15.8 billion as underlying net interest income rose 4% to £11.2. Net interest income is the amount that the bank makes from the difference between what is pays on deposits and what it makes from loans. The higher the BoE base rate the larger the net interest income.
Across the pandemic the low interest rate environment hurt NII. However, with the BoE hiking rates and with expectations of further rate hikes to come, NII is expected to power higher, not only at Lloyds but across the banking sector. Profits at Lloyds were also boosted by a £1.2 billion release of provisions set aside for bad loans in the pandemic which never materialized. Lloyd has set aside £4.2 billion in the previous year for bad loan provisions.
However, profits missed forecasts mainly due to a huge remediation charge of £1.3 billion which included £600 million for payouts relating to historic fraud at its HBOS Reading branch.
Shareholder returns
Lloyds, like its peers announced a huge £2 billion share buyback program and a 2p dividend. This was actually a higher share buyback program than its peers Barclays and NatWest, which were £1 billion. A larger buyback in shares would usually be expected to lift the Lloyds share price higher.
Impressive outlook
Despite the disappointment in earnings, Lloyds reported a strong outlook increasing its key profitability goals. Lloyds now expects to make a return on tangible equity of more than 10% by 2024 and 12% by 2026.
Strategy
These results were under CEO Charlie Nunn, who took over from Antonio Horta-Osorio in August and used this opportunity to set out his strategy for the bank going forwards. His strategy for Lloyds involves efforts to widen its source of income, for example expansion into more consumer products such as motor finance, home insurance and also a new wealth management offering. The bank also looks to expand back into corporate finances, an area where is had pared back from in recent years.
How does Lloyds compare?
Lloyds like its peers, HSBC, Barclays and NatWest have all seen a strong improvement in their results as the UK economy rebounds from the pandemic and as the BoE raises interest rates.
| Lloyds | Barclays | HSBC | NatWest | |
|---|---|---|---|---|
| FY Profit | £6.9bn | £8.4bn | $18.9bn | £4bn |
| Share Buyback | £2bn | £1bn | $1bn | £750m |
Lloyds share price fell 9% on the open on Monday, taking the share price below the 50 and the 200 SMA. The RSI is also firmly in bearish territory suggesting there could be more downside to come whilst the level remains out of oversold territory. The long wick on the candle suggests that there is little acceptance at the higher price points. Currently the year old rising trendline is supporting the price preventing further losses. A fall below here at 47p could open the doors to 45.40p the November 26 low ahead of 44.25p the December low.
Any meaningful move higher would need to close above the 200 SMA at 47.90p and break above 48.60p to close the gap and expose the round number 50p. Although a fair amount of momentum is needed to get there.
