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I think that the share buy-backs should be stated net of any shares being issued under various share schemes. Lloyds includes the cost of those share issues (the value of the shares less employee contributions) as a tax deductible expense in computing its profits. By not paying out an equivalent amount of cash, it is effectively raising capital. It really should satisfy those share awards by buying equivalent shares in the market as it is entitled to do. I think a lot of companies avoid doing that to create the impression that they are giving more back to shareholders than they actually are. Still, it is undeniable that the shares in issue have decreased by a material amount and will continue to do so at a time when the dividend is also decent. Should be reflected in the share price at some point.
Agree FCA are shocking. The car finance issue is at their door but they will blame the banks - easy target with the money. Brokers/dealers were clearly only offering their clients the loans which paid the highest commissions rather than the ones which were best for the clients. The banks had to offer those commissions or they wouldn't have got the loans. It seems that their mistake was to offer a choice of rates presumably something they had to do as they had no idea what the sweet spot was to get the loan. They were also under pressure to lend s they are and certainty were awash with cash in their ring fenced businesses - another FCA creation. Any profiteering is by the brokers who patently did not look for the best deal for their customers but I guess they have trousered the money and won't pay it back. Having said that, if the banks were better managed, they should have approached the FCA to alert them to the practice so that it could have been binned earlier because it was clearly not getting customers the best deal.
If they can make progress with Venkat's objectives, the share price should rerate. Approx £6bn splashed on buybacks at current price would reduce share count to around 11.5bn. If profits are rising at the same time, the share price ought to track quite a bit higher. As others have said, a lot can go wrong. If the financials are good over the next 12 months, that might be enough to convince the doubters. Time will tell. Fingers crossed.
I'm struggling to see the cost savings that Venkat's restructuring is supposed to bring factored into any of these figures which suggest analysts think the whole exercise to be a waste of shareholders' money.
I'm not blaming the board for SVB Solomon merely trying to make the point that this is a market where the strong players seem to get stronger and Barclays, which could be a strong player, never gets a proper grip on its business or how to deploy its capital. Barclays net tangible assets are more than 50% higher than Lloyds and yet its market cap is well below. Tinkering around with the likes of Tesco and Kensington is not fixing anything.
HSBC got SVB UK for nothing and booked a $1.5bn profit on it. Barclays seems to be fiddling with these small acquisitions which chip away at its capital reducing payouts to investors but only add to the sense that it is clueless and drifting. If this is Venkat's idea of doing something, it is pretty underwhelming.
I hope you're right silverhorse. It would make a pleasant change. If Venkat sounds less than optimistic about the year ahead, I fear the reverse might happen. Time for him to show some confidence in the business or get out.
Something meaningful is needed but shareholders are being badly failed here. The shares in issue has increased by 120m since the last buy back significantly undermining any value creation for shareholders. There is clearly the potential for a good bank here with the amount of capital and a number of successful business areas like the credit cards but the utter ineptitude of management is staggering. I think investors are happy to stay on the sidelines because they are confident that a game changing level of payouts to investors to reflect the claimed profits is just not going to happen under this board which are probably arbitraging everything for their own benefit and in particular maximising the number of awards to themselves at very low prices. Personally I think that if the plans announced on the 20th are badly received, the board should go. Clearly, the market and those normally in the know are expecting something very underwhelming or else the share price would not be at these levels.
I think that at the current share price buy-backs are a good way of distributing cash but completely agree with the comment that the return on tangible equity achieved by the investment bank which is responsible for about 70% of the total group capital is poor and the main reason for share price under-performance. Hopefully the strategy announcement will provide some way of addressing this - it certainly needs to.
I haven't really noticed banks profits being boosted by the interest rates. They were pretty good in 2021 as well. They seem to be in fairly steady territory right now which makes current pricing look anomalous to me. I am certainly a buyer at current price.
And this is before the new consumer duty requiring financial service providers to act to deliver good outcomes for customers. The claims companies will be very excited by that. So if a client fixes their mortgage and rates fall, the customer has a bad outcome with the benefit of hindsight. Does that give rise to a claim? Not sure how it is so different to a bet on house prices that proves to be a bad one. I am though very surprised after PPI that Lloyds would be incentivising car finance brokers to offer worse deals to their customers as seems to be the case. If that is true, it is extraordinary and shocking management by the board. I hope that the reality in most cases was that the extra incentive was designed to allow the car dealers to give their customers a better deal and so the practice has some justification. If that is not the case, it really is shocking and I think the CEO should go for it. Any muppet could see that a policy which deliberately harmed customers would come back to bite the bank hard. Inexcusable.
I think the BOD would be filling their boots if they really thought that the share price was massively undervalued. The fact they aren't doesn't necessarily scream disaster but I would be surprised if the next update is anything other than the usual barely meeting guidance at best. If we were at the top of previous guidance estimates for once, that would be good news but while the directors aren't buying I suspect they know the update will be rather lack lustre. No doubt the troubles in the Suez will give them an excuse on margins - all will be better next year etc ..
Barclays market cap in 2005 was around £40bn at a time when its profits were 3.5bn. P/E of 10ish and that was typical for many years. As banks are now supposedly safer with much higher capital ratios, you would think logically that their ratings should, if anything be higher. Unfortunately, the well justified perception that the regulator/BOE will now step in aggressively and take a bank down if there is so much as a whiff of trouble is dreadful for sentiment. The potential value destruction seems almost unique to banks which seem able to fail even when solvent. I In the meantime, I think all a bank can do is demonstrate its strength and resilience with massive buy backs and dividends. I take comfort that on a PE of less than 5, any further falls would magnify the effects of any buybacks assuming profitability remains good. I would be very happy to see a shrinking of the investment bank if it released capital for shareholders but that seems unlikely. Venkat must know he's on borrowed time if he doesn't deliver in February which is slight reason for optimism.
Cuckoo - lloyds is seen as a barometer for the UK economy and after Brexit, investors generally see the UK as having weaker economic prospects and therefore not an attractive place for investment. You may disagree or feel that a different Brexit - trade war perhaps over Ireland - would have investors flocking and the economy leaping forward but that is a minority view and not one shared by those whose opinions and investment decisions ultimately move the market and the Lloyd's share price. The price, like a lot of UK companies but particularly banks, is low on any normal valuation metrics. I think it will probably recover a bit given the potential pay outs to investors and buybacks which are very powerful when the price is this low but the precious commodity of positive sentiment is unlikely to return any time soon.
You make good points Fleccy. It is a very complicated area. I think a lot of dealers often make a contribution of, say, £1000 to the deposit required and presumably in many cases they can only do that due to the extra commission they get on the loan. Similarly, they might in some cases give the customer a better deal on the car. I would therefore be quite surprised if this becomes a case where everybody who has this sort of finance is eligible for compensation - but there probably are some bad cases out there where compensation is appropriate - although the FCA are very unpredictable.
Phyl, I don;'t know what planet the writers of that article are on. They suggest that bank shares have rallied tremendously but I can't think of a time in my lifetime, even at the height of PPI, when they were on multiples of earnings as low as this. It is easy to write about the headwinds facing the banking sector but none of that really explains why the shares are trading at the kinds of levels they are The banks are on much lower earning multiples than historically and that is a little odd when you consider that they are much safer institutions holding much more capital. I guess after Credit Suisse, there is a general fear that any bank in the UK, other perhaps that HSBC, could suddenly implode and that may drag down sentiment but I can't think of any other reason for these valuations. Barclays should respond by hugely upping the buybacks and payouts to shareholders as that is the best demonstration of confidence in their financial resilience. Hopefully in February that is what they will announce.