- Summary:
- Lloyds share price declined after the bank released weak Q1 earnings. It attributed the weak performance to the coronavirus and provisions for bad loans
- Lloyds share price tumbled today after net income dropped by 95%.
- The loss was mostly because of provisions for bad loans which jumped to £1.4 billion.
- I look at what next for Lloyds share price after this horrible quarter.
Lloyds share price nosedived today as the bank’s profit nosedived in the first quarter. As I had predicted on Tuesday, Lloyds Bank is one of the worst-affected banks in the UK.
Lloyds share price falls after horrible Q1 earnings results
Lloyd bank stock declined by almost 4% after the company released the Q1 earnings. The bank’s net income came in at £3.952 billion, which was down 11% from the same period last year. The company blamed this decline to the impact of the coronavirus illness and lower net interest.
The net income tumbled by 4% to £2.95 billion while the net interest margin fell by 0.12% to 2.79%. This decline was mostly due to provision for bad debt, which the company allocated at £1.4 billion. This provision was lower than the £2.1 billion that Barclays provisioned on Monday.
This weak performance was partly offset by a 1% decline in total costs and 6% decline in business as usual costs. This was partly because many expenses such as meetings and travels were curtailed due to the virus. In a statement, the bank’s CEO said:
“The impact of lower rates, lower levels of activity and higher impairment on the group’s business will continue into the second quarter, but remains difficult to quantify.”
Lloyds Bank is vulnerable
Lloyds Bank is very vulnerable because of the nature of its business. This is reflected on the bank’s share price, which are languishing close to the all-time low. Part of the reason for this is that Lloyds is the biggest bank in the UK and is very exposed to the performance of the economy. For example, it is the biggest provider of home loans in the UK. With the housing sector now being suspended, it means that the bank is not making any money.
Further, Lloyds bank is the biggest provider of business loans. With so many companies expected to go out of business, Lloyds profits and Lloyds share price will be affected. The chart below shows how Lloyds share price compare with other UK banks.
Lloyds Share Price vs Peer Banks
Lloyds Share Price vs Peer Banks
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What next for Lloyds share price?
Looking at the daily chart, we see that Lloyds share price bottomed at £27.33 in March. The stock price, which is attempting to rebound, has now moved above the 25-day exponential moving average. As a result, it appears like bulls are attempting to test the 23.6% Fibonacci Retracement level at £38.40. This retracement is drawn by connecting the lowest and highest level this year.
Therefore, in the short-term, I expect the shares to move upwards to p38.40. Still, it is worth noting that a longer-term trend will not be confirmed if the price remains below the 50-day EMA.