How are you this fine morning I think you are like me just at the moment We are sitting on a small loss on our recent trades I think we both sing off the same hymn sheet as to speak Give it 45 days and we will be back in profit
Lloyds Banking Group Questor says SELL Lloyds Banking Group
INVESTORS should ignore the Government’s sale of a 6pc stake in the bailed-out bank as a sideshow. The real action that matters is taking place in the credit markets – and it’s not pretty. There is no doubting Lloyds’ recovery has been impressive. From a pre-tax loss last year the banking group is set to post bumper profits around the £4bn mark for the year ended December. The trading for the second quarter supports this buoyant view. The core margin between the rate it offers to savers, a cost to a bank, and the rate it chargers borrowers, income for the bank – known as the net interest margin – improved by 12 basis points to 2.43pc, the highest level for over two years. The level of impairments on the core portfolio of loans is now about half the level of over two years ago. The bank’s capital position is much improved However, the performance is less impressive when you split out all the exceptional items such as last year’s £4bn hit for alleged mis-selling of PPI, £1.2bn for restructuring and £5.7bn in loan provisions. Then the underlying total income in the core business is fairly flat. Well, either flat or flattered by record low borrowing rates for the bank in the credit markets. That is where the recent movements in the credit markets come in. The yield on UK 10-year gilts – a measure of long-term debt costs – has risen. This will have to work its way into shorter-term borrowing costs, such as London Inter Bank Offered Rate (LIBOR), the market where banks obtain short-term funding. So far this hasn’t led to a meaningful change in the cost of borrowing between banks but nonetheless, costs are rising. Mark Carney, the Bank of England Governor, can guide the markets all he likes. However, those rate rises that we are currently seeing in 10-year gilts will have to work their way through the system eventually. If they make their way into the short-term bank borrowing rates then Lloyds net interest margin will start tightening. The core business will make less money, and if Lloyds tries to maintain the net interest margin and increase the rate on loans then the loan portfolio could start going bad and provisions begin rising. With the US Fed set announce its decision soon on reining in stimulus measures, the risk to Lloyds investors is clear. In the last audited year-end equity was only 4.7pc on assets of £924bn – something could be wiped out easily if things move the wrong way. Lloyds shares have risen well over 100pc in the last 12 months, now is time to SELL
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