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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.
I vaguely recall that Alex Baldock spent £30m soon after he arrived on staff training to improve the store experience. One wonders what the point of that was and how such waste can be acceptable. Not sure what other initiatives he has apart from selling bits off. On a recent visit with my son, we found that the information on the products was inconsistent and so it was impossible to compare them and we ended up looking online whilst still in the shop just to get basic information about products. In the end my son suggested leaving and buying online and we ended up buying from Richer sounds. I am a shareholder here and so only do that with the greatest reluctance but after making his investment in the stores, Baldock has actually managed to make things worse. I wonder if he even knows. Trouble is, execs often benefit from a crashed share price picking up their share awards at very low values.
Toff
Completely agree. I think there is a general acceptance that the problem is more with the UK and perception of UK as a place to invest than individual shares. I've seen no evidence that Phoenix is performing less well than it did when the share price was much higher but as I think you're suggesting, that doesn't mean they might not become even better value. In fact I think they're already down a bit since I topped up. I have a reached a point though where I wouldn't chase it much lower.
ToffAppleton I think the likes of JPM are just following the market rather than leading it. I've just bought some more of these. I think there is just a serious malaise over investing in the UK at the moment but equally, I think this creates real opportunities if you're prepared to ignore the current doom like consensus about UK shares. Even shares like BP and Shell that trade in an international energy market are at a steep discount to their US equivalents. The price here probably reflects what investors are prepared to pay for UK assets at the moment rather than some machinations of the market makers or anything specific to Phoenix. For long term holders, the opportunity to add at these prices is fantastic given that the underlying performance of the company remains strong and in no way justifies what has happened to the share price.
Feels like a mistake to buy more assets at a time when the share price to net book value is about 40% unless we are getting a similar discount on what we are buying. If that is not the case, any spare capital should be paid out to shareholders in some form - whether dividend of buy-back. It is not as if this will remotely move the dial on earnings.
I think the negativity is partly that there is never a surprise on the upside. If they give a guidance range, they always come in right at the bottom or below it assuming they haven't already reduced it by profit warning. 2024 is now being signalled as a tough year with real progress on profitability put back to 2025. Not sure anyone really believes the jam tomorrow story based on the last few years. The debt is horrendous and the refinancing suggested real panic at the board level. I am invested here but increasingly pessimistic that we will ever see the sunlit uplands. As noted, other brands such as Next and M&S are not having these problems with profitability so they can't just put it down to a tough business climate. I think it is only the potential interest from MA in particular that is keeping the share price even at its current level.
Buy back would be good at this price. Clowns in charge here unless the aim is to drive down the price to get their option awards on more favourable terms. Always good to keep in mind that the execs run business primarily in their own interests.