Picture supply: Getty Pictures
It wasn’t simply the housing market stoop that put the skids underneath Lloyds Banking Group (LSE: LLOY) shares. Nevertheless it positive didn’t assist.
Actually, I’m seeing weak financial institution valuations all spherical. Oh, and massive dividend yields in consequence. However the companies might be totally different in just a few methods.
Barclays, for instance, remains to be large in worldwide funding banking. Others turned inwards to UK retail banking after the monetary crash, for extra security.
Weak spot, or energy?
It’s maybe ironic, then, that the subsequent crunch got here from proper right here, when the UK’s property market slumped. And as Britain’s largest dwelling lender, Lloyds has been hit greater than most from excessive mortgage charges resulting in unhealthy money owed.
Nonetheless, it appears just like the ache hasn’t been as unhealthy as we’d have feared.
Within the 2023 full 12 months, Lloyds recorded underlying impairment prices of a reasonably modest £308m. And that’s after a write-back within the fourth quarter, which reversed some earlier losses.
Curiosity earnings
The financial institution additionally posted web curiosity earnings of £13.8bn for the 12 months, up 5%. That’s with a web curiosity margin of three.11%, which I see as fairly good. A disastrous 12 months for mortgage lenders? It doesn’t appear like it from the place I’m standing.
Some have already reduce their charges, with out ready for the Financial institution of England (BoE) to behave. And mortgage demand, whereas possibly a bit weaker, nonetheless appears sturdy.
I’m not shocked, after we face such a giant long-term housing scarcity. I’d say that may solely be excellent news for firms servicing any a part of the demand. That’s primarily the housebuilders, and mortgage lenders like Lloyds.
Housing demand
So how is demand for new-builds truly going?
With its 2023 outcomes, Barratt Developments posted solely a reasonably small fall in ahead reservations. The agency spoke of an “encouraging uplift in reservation exercise for the reason that begin of January,” and expects to finish 13,500 to 14,000 houses this 12 months.
Taylor Wimpey, in the meantime, informed us of “encouraging indicators of enchancment with decreased mortgage charges positively impacting affordability and confidence in our buyer base.” We must always see 9,500 to 10,000 new houses in 2024.
To my thoughts, that’s all excellent news for mortgage lenders.
Dangerous enterprise
What are the dangers? The most important would possibly simply be taking any discover of me. I’ve been bullish about Lloyds for years, anticipating the share value to climb. And I haven’t precisely been proper thus far.
So, expensive Silly buyers, by no means purchase a inventory simply because I believe it’s good worth — in truth, my spouse has recommended that possibly even I shouldn’t do it. Nonetheless, with dividends, my whole returns haven’t been a catastrophe thus far.
Quick-term ache, long-term achieve
Significantly, I do suppose higher-for-longer rates of interest and extended financial weak point might hold Lloyds shares down for some time longer.
However for individuals who do their very own analysis and perceive the dangers, I nonetheless reckon Lloyds shares might be an ideal long-term decide. And a BoE price reduce would possibly even kickstart issues.
