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Lloyds (LON: LLOY) was among the largest decliners on the FTSE 350 YTD through to the end of November, down in the region of 30-40%.

The high street bank has a lot of exposure to the UK economy, especially the housing market and consumer spending. Lloyds Bank shares have rallied in the last 30 days, primarily on the prospects offered by the start of a UK vaccination program.

LLOY shares were up from 23.98 on 21 September, to trade at 37.45 at time of writing. The stock is still a long way off its pre-pandemic levels of 50-65, which was its Q1 trading range. We’ve seen some heavy volumes on the buy side in four of the five trading sessions last week. Analysts are now touting Lloyds as a possible recovery play in January, but will it be good for it?

Time for a return to normal?

Two factors could support gains. First, the reflationary environment in 2021 as vaccines encourage a return to normal ought to see a steepening yield curve and support net interest margins. Secondly, clarity over Brexit should be a positive for the UK economy. Other factors, like the remarkable resilience of the housing market and relative strength in consumer spending, are also supportive.

Share prices of UK banks have fallen this year as 2020 has really been a story of UK plc risks – negative rates, deficits, pandemic-related GDP destruction and of course Brexit.

“[Next year] should see a more encouraging outlook for the UK economy and the removal of tail risks like no deal Brexit, says Neil Wilson, Chief Markets Analyst with financial spread betting broker Markets.com. “Near-term, rising unemployment will be a problem but ultimately a ‘return to normal’ in 2021 will support financials. A resumption of dividend payments in February when results are announced would be a big help, too.”

In many ways banks have been unfairly swept up in the markets’ pandemic crossfire as investors followed the playbook of the last war: financials are in much better shape this time and well provisioned to weather the storm. As of the end of November, Lloyds traded at a price to book ratio of 0.55.

Deutsche Bank still uncertain of Lloyds Bank stock price

Deutsche Bank has raised its price targets on British banks, catching up with the recent rerating, whilst retaining a cautious view on the sector. It warned that the cost of collecting on the coming wave of non-performing loans together with Covid recovery costs challenge potential efficiency gains for UK banks next year.


Barclays, Standard Chartered and Virgin Money, the investment bank notes, are more “prescriptive and conservative on guidance”, so don’t need much by way of efficiency gains to avoid downgrading forecasts. On the other hand, consensus expectations for HSBC, NatWest and Lloyds “[are] more difficult to achieve”. Deutsche also closed its ‘sell’ call on Standard Chartered.

The ‘banking revolution’ promised by challenger banks and fintechs such as Monzo, Revolut and Starling in recent years has also seemingly failed to address Britain’s banking requirements. Whilst many of these ‘mobile-first’ banks may offer flexible banking and easy access to additional services like insurance, loans and investment opportunities, many of the new-age banking applications are heavily geared towards expenditure, rather than saving money.

According to data from Reuters, six UK banks (HSBC, Barclays, Lloyds, NatWest, Santander and Nationwide building society) hold around 87% of the retail banking market, but despite this, millions of consumers across Britain have expressed that their banks are failing them when it comes to helping them budget, plan finances and save their hard earned money.

It looks to us that 2021 is going to be a challenging year for Lloyds Bank investors. There is still likely to be some further upside to what has been a heavily sold share. We’re not adding Lloyds Bank to our watch list because it still faces choppy waters ahead, not least the lack of a resolution of Brexit talks and the impact of Covid-19 on UK employment; unlike the travel sector, the vaccine is not going to be the shot in the arm Lloyds needs to get back to a share price of 60.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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