- Summary:
- Lloyds share price has been under pressure and is now at its lowest level in 9 years. Is it the right time to invest in the company now?
Lloyds share price is down by more than 1.40% as sentiment in European banks continue to wane. The bank’s shares are trading at 24.25, which is their lowest level since December 2011. Other London banks are also in the negative zone, with HSBC shares falling by 0.25% and Barclays falling by 0.15%.
Lloyds Bank has been in trouble
Lloyds, the biggest banking group in the UK has been in trouble in recent years. The shares have dropped by more than 70% in the past five years and by more than 55% in the past year. This year, the bank’s shares have dropped by more than 62%, becoming one of the worst-performing stocks in the FTSE 100.
Lloyds Bank is not alone. The STOXX Europe 600 Banks Index, which tracks the biggest banks in Europe has dropped by more than 48% this year and by more than 58% in the past five years. Other UK banks like Barclays, HSBC, and Standard Chartered have also been in a similar trend.
There are three primary reasons why Lloyds Bank has struggled. First, the ongoing issues surrounding Brexit have affected Lloyds more than other banks. That is because the company mostly focuses on the UK market, making it more vulnerable in case of a no-deal Brexit. It makes more than 97% of its income from the UK.
Second, the company has been affected by the ongoing crisis. Indeed, like all other banks, it has allocated billions of pounds to cover for bad debt. However, unlike other banks like Barclays and HSBC, it does not have a trading division. This division has helped to offset the falling revenues for these other banks. For example, in the second quarter, Barclays trading division grew by almost 50%.
Third, Lloyds share price has dropped because of low interest rates and the possibility that they will drop further. Low interest rates affect how much a bank earns from mortgages and other lending products. With UK rates being at a historic low and with the BOE signalling its openness for negative rates, the income for the bank has almost evaporated.
So, is Lloyds stock a buy?
There are two sides when you look at Lloyds Bank. First, from a valuation stand point, the bank is relatively undervalued. For one, the current valuation is valuing it at half its net tangible assets. Also, it is a more conservative bank with more than 85% of its loans secured by assets.
At the same time, its capital levels are £12 billion above the minimal requirements. The amount of customer deposits have also been growing. All this means that the bank’s investors will likely receive a sweet dividend once the central bank allows.
Lloyds share price technical outlook
The daily chart shows that Lloyds stock has been in trouble. The share price is significantly below the short and long-term moving averages. It is also below the support of the descending triangle pattern. Also, it seems like it has found strong support at the 24p level.
Therefore, I suspect that the price will continue falling until the UK manages to handle its second wave and a Brexit deal is sealed
Dow Jones Daily Chart
