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View the video online at http://citywire.co.uk/money/video/a543666

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).

Are Lloyds shares really Up the Junction?

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.

Interestingly, Lloyds entered Citywire Top Stocks last month on the back of its top 10 holding in Richard Buxton's Schroder UK Alpha Plus fund.

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.

37 comments so far. Why not have your say?

joe stalin

Nov 18, 2011 at 14:13

So? what is the point of the video. you either think Lloyds is going to fold or it is n't. I don't think it will and as Europe is now struggeling to keep its ship from capsizing its pre-ocupation with all things loyds looks increasingly dis engenuous. Lloyds is being shorted to b@&gery because there is a ban on sorting European financials. Our esteemed leadership still does apear to have a grip on how the markets work. The works has been done at Lloyds and it is virtually out of the Govrnment's clutches. I can wait and I am sure so will others even if you dont seem to have the patience. Perhaps Citywire needs to focus more on AIM stocks.

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John Pickford

Nov 18, 2011 at 14:46

How many more negative stories do you have to run, I know that bad news sells better than good news, but how many times do you want to give LLoyds Banking Group a kick in the teeth.

Maybe its Gordon Brown & co (Milliband & Balls) you should be venting your negativity on, its their stupidty in making Lloyds take over Halifax that caused todays problem.

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mikeran

Nov 18, 2011 at 14:47

agree Joe Stalin, Fully support your view that LLoyds is being heavily shorted as the loan stock charts will clearly illustrate. I am surprised that in view of the European shorting bans the UK Government and its advisors UKFI are not responding in any way when the loss to the taxpayer from its original bail out price of 73 pence to todays price of 25 is running into billions. I would suggest that either this shows incompetence on their part or irresponsibility. Because whoever is the main organiser behind this shorting exercise is trousering billions while at the same time demonstrating the manipulation and ease with which HFT computer systems can now carry out this task at will on any stock.

and the sad fact is the Governments Political ambition to get the Taxpayers money back is now much less achievable. Any one shorting to this degree should not have the benefit of stock market anonymity. Perhaps some kind investigative Journalist will tell all.

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David Mitchell

Nov 18, 2011 at 15:14

I think the degrading of Lloyds is going a step too far. Lloyds, with Halifax the largest mortgage bank in the UK, has suffered more because the housing sector is so much in the doldrums but one day it will return to normal and fhen watch Lloyds shares leap. This year and next year, to an extent, will be difficult and then I anticipate banks generally, but specially Lloyds, to go up in value - and quite considerably. I am hganging on bwecause I know I would regret selling them at a loss right now! Let's have an encouraging outlook for a change!

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Paul SP

Nov 18, 2011 at 16:34

@ Previous contributors.

Don't get what your beef is. Nothing in the video was incorrect and was, sad as it is, a succinct report on how Lloyds has got to where it is today. The fact is with current issues still to be reolved - including economic background in UK & Europe, CEO on sick leave, UK housing market woes to name but three it will be a long haul for Lloyds.

I wish it were not so, but that does not alter the facts. The UK economic position is worsening and Lloyds, already weak, will likely suffer more. I think most would agree with that including those shorting the shares. Shorting is a red herring.

Lloyds will likely survive, but it is still in a long term mess.

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Hilary hames

Nov 18, 2011 at 16:46

What does it mean, that traders are betting that the price will continue to go down?

I bought my small tranche at 29 so I am hoping they will at least go back up to that.

Presumably they will go back up a bit when the index goes up and there are a couple of days when the bond markets punish Italy and Spain less heavily

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Robert Court

Nov 18, 2011 at 17:53

If Lloyds go down to 20 pence it'll definitely be a buying signal for me!

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john_r

Nov 18, 2011 at 19:29

I agree with 'Paul Sp' the present price of Lloyds has nothing to do with shorting but is all to do with the lousy prospects for Lloyds under the current economic climate. To blame the shorters for the share price is as daft as blaming the bankers for the credit crunch.

Can the European tragedy get worse? - perhaps in this answer lies the prospects for Lloyds.

Until Germany decides what to do with the Euro I fear the only way is down - shorting or no shorting.

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mikeran

Nov 18, 2011 at 21:59

Sorry Jr, to blame the shorters is not so daft. LLoyds q3 had improved fundamentals with PPI accounted for. And some prospect of a future forced sale of 632 branches. A reduction in its lending to euro states,no exposure to Italian or greek debt, Ireland contained. And Bank showing a profit even under the accounting method chosen for its trading statement.

No Bank in europe or the US has suffered the same level of Shorting as lloyds has had directed towards it of Late. OK so some Euro countries have banned or suspended bank shorting activity.

So why have they done this- obvious. Why has the level of loaned stock for shorting activity against LLoyds increased significantly during the last three months.- again obvious to facilitate shorting activity. Today some 185 million trades, spread between low and high 0 .8 p max .mjnijmum period to achieve this 4 hours. So HFT systems working overtime on millisecond slicing. On paper what is the outlay to obtain profit of £20000 perhaps about 3 million. No or very few Private investors or genuine buys, perhaps equally a few forced or panic sells from nursing a loss.

Somebody is abusing short selling using HFT systems, based not upon the economic climate or stock fundamentals, but greed, market sentiment and overall a slow market.

Let us not forget that Job losses are now occurring in investment banking . and in my view will accelerate after New Year. Not surprising , and assisted by the greed and Panic evident in the market. Fundamentals no longer important / sentiment and media hype playing to the Hedge Funds.

They will take it all regardless of what they destroy along the way, including themselves.

Barc. and RBS have not matched the lloyds fudamentals and have more exposure to euro. debt and yet have not suffered the same high level of consistent shorting, managing more blue days overall.

So shorting no red herring in this context. Perhaps it would be better if such anonimity did not exist within stock exchange trading. It would be interesting to know who was borrowing loan stock as well as the lead players. Maybe even whether it was within the UK or outside. perhaps even to eliminate any connection between govt./taxpayer held stock or the recent sale of NR. Which clearly was poor timing both stategiacally and aginst future sale prospects for Lloyds branches.

Necessarily a long reply, but trading now becoming a contentious and complex subject with insufficient regulation. But after this experience that will come throughout Europe.

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mugwuffin

Nov 18, 2011 at 23:16

Hi, I'm a total novice when it comes to matters of this nature, so please forgive my ignorance.

As an LBG employee & shareholder, (around 10,000 shares) what do i have to gain personally from the project Verde sale? - Will i get a % return per share, or a stake in the new bank? How will it be calculated?

Confused, so any advice would be gratefully received!

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john_r

Nov 19, 2011 at 01:10

Could I remind Mikeran that Europe is standing at the precipice of a major banking crash. As it happens there isn't much to choose between LLoyds and RBS in terms of recent performance but more importantly look at the the major banks of our European friends - their share prices are equally bad or worse even though shorting is outlawed in their countries. And there lies the problem. These European banks with their large exposure to Greece and Italy will never get their money back and many can be considered temporarily bankrupt and on life support from their own goverments.

Lloyds along with other British banks have massive investments in Europe so if a major bank fails in Europe we will get caught up in the domino effect and we won't be getting our money back either. Cameron seems to be fighting our corner in Germany but no one really knows where this is going to end.

Just now Asian banks as well as US banks seem to be pulling back from European exposure. European interbank trading is becoming more difficult and the conditions that brought down Northern Rock may be just around the corner. And that's why LLoyds share price is where it is - nothing to do with shorting. The crunch is coming. Wake up Germany!

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mikeran

Nov 19, 2011 at 06:41

well you mention Northern Rock Jr, sold off recently and very quietly until the deed was done, and at the same time as lloyds trying to sell 632 branches in EU forced sale. I am of the view that on the open market at a more appropriate time a better deal could have been done for the taxpayer. As it is NR was sold to Virgin money, mostly financed by an American Financier friend of Richard Branson. The proviso that if it was floated within three years a sum of 80 million be paid to HMG in order to placate any public anger at profiteering. But the US financier will reap a reward they are not charities and there will after the agreed timescale be redundancies. With respect to LLoyds I still maintain my position that it is being heavily(excessively) shorted with or without UKFI/HMG involvement. I ask the question particularly with the absence of lloyds CEO is this another sell off looming at a loss to the taxpayer? Yesterday in a national Newspaper correctly in my view HFT Trading was described as High Frequency THEFT.

It is no wonder that many Euro governments have seen fit to ban this style against their Banks . It is not in the Public interest and is in fact aggravating and prolonging an already difficult economic situation.

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Northener

Nov 20, 2011 at 10:16

I wonder if it will turn like Northern Rock or Bradford & Bingley, where we lose all our shares???????

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Andrew Barwick

Nov 20, 2011 at 11:12

Very interesting comments from Mikeran. I bought lloyds before they took on HBOS mainly because I thought they were safe and boring and would pay dividends. I totally misjudged them and it has cost me dear.

What I find difficult to understand is why owners of stock are happy to lend it our for shorting, when you get it back it will bw worth less and you will have a loss of capital value, why would you want to do that? Can anyone explain?

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mikeran

Nov 20, 2011 at 12:20

It is not the owners of stock necessarily that are lending out their stock, unless it is of course UKFI on behalf of HMG. And how will you know that if it was to be the case. But holders of stock (not owners) may be lending out stock and pocketing a nice sum. The SP is perhaps at this time not important to the Govt. Maybe if it is still holding nearer to the next election it might be more relevant to them. Perhaps they are already waying up NR type options , as they are short of Money. Slightly more difficult to do with lloyds than NR, but still feasible, at some stage.

But HMG is still making money on lloyds as part of the bail out terms. If they were also lending out stock-- then you work out the sums. But as with NR they will not let you in to what is going on-- you might have to hack somebody to find , anything closer to the truth.

But I am a cynic and unbeliever-- they wouildnt be doing anything underhand-- surely not.. Equally you will not find out who is shorting LLoyds on loan stock. But remember NR sale was played close to the chest, and is now 44% owned by a US Financier, and NR will be floated as soon as Market conditions permit a good return.

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Andrew Barwick

Nov 20, 2011 at 13:18

Perhaps I'm beginning to understand mikeran - I presume you mean that there is a difference between owners of stock and holders of stock? Can it be that our shares held in dealing accounts, SIPPs or ISAs by Barclays, Hargreaves or whoever, are being lent out for shorting without the knowledge or permission of the actual owners?

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mikeran

Nov 20, 2011 at 13:55

I could not comment on individual company holdings, as of course I do not know specifics. But the difference you refer to is correct Holders /owners . One of my earlier posts referred overall to a significant increase in Loan stock in use over the past three months. That is always a guide to overall market activity/direction.

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Chief Mukuni

Nov 20, 2011 at 15:41

All the above comments still do not give me any indication where this stock is going...ho hum

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Dennis .

Nov 20, 2011 at 16:50

In the past people have bought very cheap shares thinking that they couldn't go any lower. For example Northern Rock, Woolworths and Jarvis. No tell me again why Lloyds is different?

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john_r

Nov 20, 2011 at 19:17

I find interpreting bank financial statements really difficult so below are comments made by financial journalists after Lloyds recent interim statement (Nov 9th 2011).................

''LLOYDS Banking Group, owner of Bank of Scotland, slumped to a £607 million pre-tax loss in its third quarter (to end Sept) and warned that it could miss medium-term financial targets......

With many market commentators now anticipating no rise until 2013, the bank warned it might not reach revenue targets until 2014.

The result takes Lloyds’s cumulative loss for the first nine months of the year to just under £3.9 billion, against a £2bn profit for the same period last year, after it took a £3.2bn charge for payment protection insurance in its first half.......''.

The bottom line is that if you're going into the market then take care. I expect the current financial position is already reflected in the share price together with a fear factor. To its credit LLoyds has been busy reducing Euro exposure. Other analysts calculate asset value at over 50p/share. My own view is to stay out of the market until the Euro situation crystallizes one way or the other. I've already mooted my view earlier that unless Germany agrees to give back its Euro winnings then the situation could get worse. I am not a professional investor so do your own research.

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Chris Marsden

Nov 20, 2011 at 21:41

If they are 'cheap' there is a reason. Its a free market to buy or sell. so it is JUST as likely to go up as down from it's current value. Why the confusion about shorting? It is exactly the opposite of buying (or being long). The effect on the market is identical if you sell shares you hold, as taking a short position. You will make or lose just as much.

If you think they will go up you buy or go long or vice versa if you think they will fall further. If you don't know you either get out or hedge, that is SELL an equivalent holding then you neither make nor lose (apart from dealing charges). If you hold LLOY and think BARC will do worse, you could keep LLOY and SHORT BARC.

So if you got it wrong first time, you would get a second chance with betting LLOY do better than BARC, and you get a third chance to get it right by reading the market and selling BARC when you think the banking sector is 'at the bottom' and wait until LLOY goes up, and make on them both.

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georges

Nov 21, 2011 at 01:18

Despite all the brokers views, I have never understood why an old process that could not get things cleared in under 2 week and therefore allowed for shorting still continues. Shares should be bought for cash and cetainly no shorting of bank shares. If they are a conduit for UK plc finances, there should be no tolerance for share price manipulation like this.

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Chris Marsden

Nov 21, 2011 at 12:16

Why / how do you think the price is manipulated? Nobody wants them they think the banks may collapse and so not willing to buy them. btw I bought when I thought they could not go much lower when they went back under 30p and are still down 20%. I reckoned the Gov would not allow them to go bust, or Virgin Money or the Chinks might but them up on the cheap.

I was thinking I would buy some more when it gets down to 22p. I think I might wait until they get down to 5p. But then again, I might think better of it. (Now 23.38)

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Chris Marsden

Nov 21, 2011 at 12:16

Why / how do you think the price is manipulated? Nobody wants them they think the banks may collapse and so not willing to buy them. btw I bought when I thought they could not go much lower when they went back under 30p and are still down 20%. I reckoned the Gov would not allow them to go bust, or Virgin Money or the Chinks might buy them up on the cheap.

I was thinking I would buy some more when it gets down to 22p. I think I might wait until they get down to 5p. But then again, I might think better of it. (Now 23.38)

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Chris Marsden

Nov 21, 2011 at 12:17

Sorry for the double post. I waited a minute, still on the screen so I press Post Reply again and then I get two. Like busses really.

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Hilary hames

Nov 21, 2011 at 13:05

could they drop out of the ftse 100?

I have got £3000 worth at 29p but am hopeful they will reach that level again - but think I might have a wait.

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Robert Court

Nov 21, 2011 at 13:24

I should imagine that LLOYDS would reach some psychological resistance at breaching the 20 pence mark and trade within prices of 20 and 22.5 [for a few days] should it fall as low as 20.

I'd be inclined to buy in at say 20.25 IF it goes that low and get out if it went up to 22.30 to give me a profit [net of trading costs] of over 8%.

Total speculation aka gambling but a nice little gamble just for fun [should I feel like it] if and when it gets that low.

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Chris Marsden

Nov 21, 2011 at 13:43

There is one way I could force the price to go up - start shorting it, then watch it rise! Damn.

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Dennis .

Nov 21, 2011 at 14:14

Hilary, I have an old newspaper showing Lloyds shares over £8.00. There must be people waiting for that to return too.

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Cheryl Mara

Nov 22, 2011 at 15:05

@Muffeiy Surely Lloyds have to be a better buy than RBS

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Chris Marsden

Nov 22, 2011 at 17:25

For 2 1/2 years they have both been an even better 'SELL'.

Only another 4.4% loss today. Well It could be worse : Thomas Cook! Down 75%

Whoever said Lloyds were cheap should buy Cook's.

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Kenpen2

Nov 25, 2011 at 14:49

@ joe stalin, mikeran, chris M, anyone ....

Please could one of you explain shorting to me ?

The way I think it works is this :

Hedgie borrows (rents) some humungous wedge of shares from a willing owner (HMG ?) when price is say 50p, and starts selling, selling, selling. Mugs like me can't believe their luck when price drops to 40p, buy some. Price continues to fall. Mugs with any dosh left buy more @ 30p, then 25p. Price still goes down because hedgie is still selling more than mugs can buy. Price hovers around 20p and mugs (this one anyway) get worried.

BUT; there must come a time when the hedgie has to buy back all the shares he's borrowed to return them to the rightful owner, right ? Now suppose all we mugs hold on to our "cheap" shares like grim death, at least until they've breached 50p again. So he's forced to buy at our price; he loses and we win.

So hedgies do us all a big favour ?? I think not, but what am I missing ? Is holding on the way to bust their flush ? How long might we have to cling on for ?

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Anonymous 1 needed this 'off the record'

Nov 25, 2011 at 20:49

Kenpen2

1. what makes you think that the drop in share price is due to shorting?

2. your explanation is vastly oversimplified and naive and if this is what you think then I would give up investing and go back to reading the Daily Mail for advice.

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Chris Marsden

Nov 25, 2011 at 21:09

That's hardly helpful Annony.

You can short by getting a CFD account for example. There it is identical to going long, just a mirror of the transaction. Everything must be assumed to be at fair market value. It is JUST as likely to go down as up. Past performance, prospects, analysts views etc etc are available for all to see. It's all built into the share price. I don't know the technicalities of how it all works, but there is nothing magic about shorting. You are just as likely to make - or lose - money either way.

Google: Bulls make money, Bears make money, Pigs get slaughtered.

Says it all.

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Kenpen2

Nov 26, 2011 at 11:57

@ Anon1 :

"1. what makes you think that the drop in share price is due to shorting?" - er, read foregoing discussion.

"2. your explanation is vastly oversimplified ", well yes clever dick, even I know that, but since you know all the answers maybe you could provide some enlightenment instead of abuse.

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john_r

Nov 26, 2011 at 20:59

@Kenpen2

I think you have hit the nail on the head.

Many investors in Lloyds would prefer to blame the shorters rather than admit they made a poor gamble on buying a stock with everything stacked against it.

In fact LLoyds to my reckoning have nothing going for them - they will almost certainly be disclosing multibillion pound losses for 2011 and the bad news will just keep on getting worse until a solution is found to the Euro crisis. Lloyds are under stresses and strains which just won't go away.

The new CEO has vacated his post due to illness and now the Financial Director (acting CEO) looks to have quit as Lloyds have announced he will leave in February and they are looking for a replacement.

And yet still some people prefer to ignore the real situation and blame the fall in share price on hedge funds shorting the bank!

So KenPen you hang on to your shares if you really want to?

But to me it seems the shorters have got it right so far and probably already cashed in their chips - so well done to the investors in the hedge funds.

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derek burgess

May 18, 2012 at 00:26

i have been given a couple of thousand shares off my dad and he says hang on to them coz long term the only way for these shares is up so as a long term investor should i buy more or stick where i am

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