Questor share-tip: Lloyds is a buy

Lloyds Banking Group is cleaning up its act. When your list of misdemeanours, perceived or real, is as long as Lloyds's charge sheet this is not an overnight project, but the UK's largest high street bank is getting there.

Published: 6:00AM BST 06 Jul 2010

Lloyds Banking Group

On Monday it took a major step by selling HBOS's integrated finance business a significant slice of the business that got HBOS and then Lloyds into so much trouble to private equity business Coller Capital.

Although the 332m deal will not be "material to the group's accounts", as the bank put it, it is material to the future direction of the bank. HBOS's integrated finance arm was the part of the bank that invested alongside private equity partners in businesses including housebuilders, retailers and property companies. Although the equity investments were not always substantial the debt the bank provided alongside the equity was, and was part of the reason HBOS was hit so hard by the financial crisis.

By distancing itself from this business, Lloyds has demonstrated its commitment to lower-risk banking. Lloyds' shares have not recovered as significantly as RBS's the other major bank the Government had to bail out. Questor does not think the Lloyds has worked through all of its legacy issues, but it is on the right track.

Eric Daniels, the bank's under fire chief executive, waived his bonus in a further sign of contrition from the bank. As Questor pointed out last time it covered Lloyds, the time may have come to let bygones be bygones.

True, the bank suspended its dividend after the going cap in hand to the Government, and true there is still a lot of uncertainty about the general economic picture in particular the property market and wider financial market on whose fortunes much of Lloyds success will lie. However, given the circumstances the bank produced good, consensus-busting figures in its most recent set of accounts.

In its advertising Lloyds claims it is "there for the journey". We think investors should buy a ticket too.

A list of 91 banks that will be subject to "stress-testing" across Europe was released late on WednesdayHSBC BarclaysRoyal Bank of Scotland and Lloyds are on that list
Have they just got to spell their name correct to pass?HSBC could be a good bet?
What a waste of time
Dont count this leave that outohwe mustnt mention thisand our dealings with Goldmans dont countI had my fingers crossed!

From last week's Shares Mag:
"Nomura banking analyst Robert Law has upgraded Lloyds Banking Group (LLOY) from reduce to buy and increased his price target from 53p to 80p, citing the firms exposure to improved margins in its domestic operations.
Law, who highlights Lloyds as his preferred UK bank, indicates this improvement is being driven by the difference between benchmark mortgage rates and the current low short-term interest rates.
He is also confident the banks capital position is adequate, adding planned debt reductions should allow the company to meet the new Basel III regulations on capital, due to be introduced in 2012.
Law notes that as a largely retail bank, Lloyds looks less vulnerable to regulatory change affecting the capital markets area. He indicates the key risk to this positive view is the funding structure, with a significant reliance on wholesale funding."

Can anybody see these hitting 80p

Of course with time
and today has reached 60p+

sp rising with the market,results due in 3 weeks.

from the TELEGRAPH - market report

Banks underpinned the blue-chip index's advance after The Committee of European Banking Supervisors unveiled some details of its stress tests for lenders. Dealers reacted positively as the tests do not appear to be as stringent as feared.

The sector also benefited from a push from strategists at Credit Suisse. Andrew Garthwaite upgraded the banking sector to "benchmark" from a 10pc "underweight". The broker argued European sovereign credit risk is overstated and macroeconomic factors are now more supportive. Other positives for European banks include attractive valuations, easing of lending conditions and tax increases being watered down. Royal Bank of Scotland put on 1 to 44.3p and Barclays rose 10.4 to 302p.

Elsewhere in the sector, Lloyds Banking Group perked up 2 to 60p after Bank of America Merrill Lynch reiterated its "buy" rating on the stock, arguing the shares may double in the next two years.

"Banks underpinned the blue-chip index's advance after The Committee of European Banking Supervisors unveiled some details of its stress tests for lenders. Dealers reacted positively as the tests do not appear to be as stringent as feared".

So they did just have to spell their names.well theres a shock!

As the Stress Tests is sure to be price sensitive market information into the condition of listed stockshow can any known information be withheld?if a bank is almost fckuedI would like to know.. double standards?double-dealing.double crossing?...answers on a postcard...

Great quote from Joe Kernan on CNBChe askedwhy have the Banks Stress Test results.. after the markets close today? he was told the Americans.. whos markets will still be open.. do not understand our methodologyhis reply The Europeans have learnt how to except cooked books then..lol..

Six Greek banks which make up about 90 percent of the country's market are among the 91 banks testedIf one Greek Bank passes the stress testI would call for a stewards enquiry!

Well only one is expected to fail and that's ATEBank with a Tier-1 capital ratio of just 7.7%. The other five are expected to pass.

Stewards enquiry!

One Greek Bank fail the stress test3 billion short fall now lets publish the exposure to sovereign debtwhat a Jackanorythe markets aint going to buy this?

Past the test and moving well ahead this morning ........ 65.50p +2p

News that just seven out of the 91 banks stress-tested by European regulators had failed led analysts to slam the result.
News that just seven out of the 91 banks stress-tested by European regulators had failed led analysts to slam the result, saying it was unlikely to provide the market with the comfort it had been looking for.

"We would view this as not a sufficiently conservative set of tests," said Robert Law, co-head of banks research at Nomura. "We do not think this will provide a positive catalyst for the market."

Stephen Pope, chief global equity strategist at Cantor Fitzgerald said: "I see nothing stressful about this test. It's like sending the banks away for a weekend of R&R."

Of the seven banks to fail the test which required a financial institution to maintain a Tier 1 capital ratio of more than 6pc five were Spanish, one German, and one Greek.

In total the banks will need to raise 3.5bn (2.7bn) to reach the minimum Tier 1 capital ratio required.

This figure is far below even the most conservative estimates of most banking analysts, who had expected European banks to face pressure to raise tens of billion of euros to bolster their financial positions.

US law firm Allen & Overy described the test as a "failure" and said banks that had only just passed would now be under pressure from the market to improve their capital ratios.

"There is little evidence that the tests have been applied consistently and there is a lack of credibility, making this a wasted opportunity," said Richard Cranfield, chairman of Allen & Overy's global corporate group. "One assumes those banks that have failed will be rescued or recapitalised."

The results provoked a short-lived rally in the euro against the dollar. However, the single currency fell back as criticism of the tests grew with the publication of further details on the methodology.

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland were as expected given a clean bill of health. The weakest performer was Lloyds, which passed the most difficult test with a capital ratio cashion of three percentage points, while the strongest was Barclays.

Some investors were prepared to give the tests their support and said it could act as the prompt for the European authorities to provide more support to the region's banking sector.

"The test sends a strong message to European politicians that they need to support the banking system," said Robin Creswell at fund manager Payden & Rygel Global. "The European banking industry is in a postion not unlike where we once were with RBS, and this should be the prompt for policymakers to provide more active support to banks."

With the weekend to pore over the test results, expectations are for an active trading session on Monday as the market offers it first considered verdict.

Very strong this morning, reached 70p ealier and is moving closer to it again 69.77p at the moment

71+p atm results due next week target sp 85p.

A record volume 630M shares were traded and finished at 71.80p UT

@halifax
is the sp target 85p for next week, or is that a long term target?
Nice the see the sp price around 70p now

bit of tree shake today in line with the market, 85p sp target by february next year when final results should be out.