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Are Lloyds shares really Up the Junction?
Why Squeeze's classic pop song could be the theme tune for investors in Lloyds Banking Group (LLOY.L).
What has Chris Difford and Glenn Tilbrook’s classic pop song about a young man’s story of love, marriage, parenthood and divorce got to do with Lloyds Banking Group?
Not a great deal, but the last line of the song – 'really up the junction' – does sum up the bank's predicament as it faces a eurozone debt crisis and recession with a chief executive who's just gone on sick leave.
This points to the fact that, despite all the negativity around the bailed out bank, one of the biggest debates in City right now is whether to hold Lloyds's shares (LLOY.L) as they trade at around 25p, close to an all-time low. Is, to paraphrase another song, the only way up for the stock? Perhaps, but so far it has brought nothing but pain to long-term investors.
Is Lloyds Up the Junction?
Hi, welcome to stock of the week. I’ve been thinking how I could make this slot even more interesting and what I realise is missing is some music!
Unfortunately, we don’t have the budget to spend on music rights, which is a shame, BUT if we did last week’s video on Weir Group would have had ‘Pump it Up’ by Elvis Costello. Pump maker, pump it up. Geddit?
This week’s stock of the week is Lloyds Banking Group and if I had my way I would be raiding my record collection to play Up the Junction by Squeeze.
What, you may ask, has Chris Difford and Glenn Tilbrook’s classic pop song about a young man’s story of love, marriage, parenthood and divorce got to do with Lloyds bank?
Not a lot, to be honest, except the title and last line of the song. For Lloyds is arguably ‘really up the junction’.
The last three years have been a nightmare for the group. Press ganged into taking over HBOS in September 2008 in order to prevent it from collapse, Lloyds was soon in need of a government bail-out itself and is now 41% owned by the tax payer.
Its share price has plunged to just 28p and dividends scrapped as first the disastrous scale of that acquisition was recognised and then as the banking world entered a second crisis provoked by the Eurozone’s debt woes.
In the past year it has shocked investors with huge provisions against bad debts in Ireland and for the mis-selling of payment protection insurance.
Meanwhile, European regulators and the Independent Commission on Banking insist it should sell hundreds of its UK branches, prompting shareholders to wonder why on earth they bailed out HBOS in the first place?
This month there was further bad news as the bank announced that chief executive Antonia Horta-Osorio, who only joined in March, would take sick leave until the end of the year. This The reason? Stress.
This came just before Lloyds said that targets that Horta-Osorio only set in June would have to be pushed back as a result of the economic downturn.
Despite this litany of woes, one of the biggest debates in the City right now is whether it is the right time to buy Lloyds shares.
Banks are almost impossibly complicated to analyse and value, which is one reason why the Independent Commission on Banking wants to separate high street retail banking from the risky casino operations of investment banks.
However, the investment case around Lloyds, is quite straightforward. It is simply that a bank with the brand, history and customer base of Lloyds must surely advance from such a low level. Investors such as Richard Buxton of Schroders have been buyers of the shares for this reason. However, many are unconvinced and even the bank’s fans recognise that this will be a long, long haul.
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by Gavin Lumsden on Oct 26, 2016 at 14:01