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Are you ready for this? Tomorrow Lloyds Bank publishes its full year numbers and we suspect investors will be less than happy. This is the stock we love to hate.

Shares in Lloyds have largely paddled sideways over the last 12 months as the market has been taking on the last of the UK government’s stake in the bank. This was reduced to zero last summer.

Then we’ve had the HBOS Reading scandal and the worry for Lloyds shareholders that the UK economy is slowing down and that Lloyds will not have a solution to Brexit.

Lloyds shares – can they finally shake off the penalties?

One good sign is the fact that the government got all its money back having bailed the bank out in 2008. This is seen by analysts that the bank is in pretty good health. The Lloyds results will be an opportunity for CEO Antonio Horta-Osario to show investors in Lloyds shares that he’s got what it takes.

But Lloyds shares have a long, long way to go before they get back to where they were when the bank was bailed out. The market is looking for a pre-tax profit of £7.1 billion and a final dividend of 3 pence per share.

In terms of costs, there is ongoing litigation and conduct costs, but these have been going down and were zero in Q3 2017.

“The lower they go the more profitable the bank becomes and between them these items have cost Lloyds £25.3 billion since Q1 2013,” says Russ Mould, Investment Director with stockbroker AJ Bell.

Many retail investors only care about one number with banks and that’s the dividend. Investors buy stocks like Lloyds because of the income, and historically they have generated some good yields. But all the additional costs they have been labouring under since 2009 have really burdened them and cut into their ability to provide good dividend yields.


The Armchair Trader says:

Let’s talk about the Lloyds share price. Before the financial crisis in 2007 Lloyds Bank shares were trading at around 340-350. Following the crisis they have descended to 65-75 range. It has been a devastating emasculation for Lloyds shareholders who hung on to the stock in the hopes that somehow it would make it back. It hasn’t. And you know what? It probably won’t. Banking and finance are changing. The world is changing. Lloyds faces more regulatory requirements than it did in 2007. And on top of that there are far more challengers in its market now, not just banks, but other forms of financing like peer to peer finance networks. Lloyds is really just an income play and we don’t see it being anything else.

 

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content 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. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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