LLOY - what to do

[Seany88]

Well sold out again at 72.02p...didn't get a chance to put the other half back in. Hoping it drops again then I'll stick the lot in around 67p and sit and wait for the magic POUND!

[Beardy10]

Lloyds like every other bank is a punt of the UK economy....but it's a bigger punt (as is RBS) as if we do see a double dip (have we come out of the first?) they're are not in a strong position...normally a bank has built up good reserves during the boom before the bust.

Someone posted earlier in this thread and said "what's changed about Lloyds" ? Well the truth is quite a lot has. They now post HBOS merger have a mature business which is very UK centric, cannot easily expand (because of MMC rules) in it's traditional areas of business as it has such a big percentage of those markets already (thanks to the merger). So it is now being forced to go into areas of business which management has always kept away from...it is currently spending and time a lot of money hiring people to build at best a third tier investment banking business (they don't make money for anyone except the employees). To build a proper, credible and profitable investment banking arm will require a lot of money being invested over the first few years. My bet is management don't really understand what they are trying to do have been sold the story by their brokers/strategists and the people doing all the hiring and will give up when they realise how hard it is.

I am not a fan of RBS or Lloyds but personally I would say ultimately RBS might be a better punt....it's got a lot more st on it's balance sheet but it has much more diversity in it's income stream which ultimately should win through.

Edited by Beardy10 on Saturday 4th September 20:35

[cannedheat]

fesuvious said:

The primary reason I have betted everything I had against Lloyds, during a recession, and at a time when my earnings had fallen by 2/3's...?

Simple. I firmly, wholly beleive that there was one reason why Lloyds were forced to take HBOS on.

They were the only bank at that time that could. The only bank solid enough

Edited by fesuvious on Friday 6th August 07:00

I know that HSBC was offered the chance to buy HBOS but, as a very conservative bank, they realised that the timescales involved wouldn't allow for full due diligence - as such they declined.

The deal with Lloyds was, I'm told, pushed through by ministers and completed in a hurry onboard a private jet - I guess they were given sweetners to grease the deal - some of which have been recinded.

I think that once they get their losses/write downs under control they'll be a huge cash generating machine. Pre HBOS takeover I understand that Lloyds was the largest operator of current accounts in the UK and that HBOS was the largest mortgage provider. When combined, the customer base is vast - a ripe ground for cross selling...etc.

Of course, neither bank has much of a presence outside of the UK and no real investment arm to speak of, but with time, and the cash generated from the existing customer base, this could be resolved through aquisitions...etc

One final point of note is that when interest rates start heading back up, the banks are going to start making even more £££. The bank I work for would make about £500m extra in profit for each 1% rise in base rate...!!

[Seany88]

Beardy10 said:

Lloyds like every other bank is a punt of the UK economy....but it's a bigger punt (as is RBS) as if we do see a double dip (have we come out of the first?) they're are not in a strong position...normally a bank has built up good reserves during the boom before the bust.

Someone posted earlier in this thread and said "what's changed about Lloyds" ? Well the truth is quite a lot has. They now post HBOS merger have a mature business which is very UK centric, cannot easily expand (because of MMC rules) in it's traditional areas of business as it has such a big percentage of those markets already (thanks to the merger). So it is now being forced to go into areas of business which management has always kept away from...it is currently spending and time a lot of money hiring people to build at best a third tier investment banking business (they don't make money for anyone except the employees). To build a proper, credible and profitable investment banking arm will require a lot of money being invested over the first few years. My bet is management don't really understand what they are trying to do have been sold the story by their brokers/strategists and the people doing all the hiring and will give up when they realise how hard it is.

I am not a fan of RBS or Lloyds but personally I would say ultimately RBS might be a better punt....it's got a lot more st on it's balance sheet but it has much more diversity in it's income stream which ultimately should win through.

Edited by Beardy10 on Saturday 4th September 20:35

But (and this is just an opinion) Lloyds doesn't NEED to expand any more because its acquired HBOS? I'd say they just need to focus on what they already have and to increase profit per customer and make efficiencies within the business which they're already on course to do so?

[Beardy10]

Seany88 said:

Beardy10 said:

Lloyds like every other bank is a punt of the UK economy....but it's a bigger punt (as is RBS) as if we do see a double dip (have we come out of the first?) they're are not in a strong position...normally a bank has built up good reserves during the boom before the bust.

Someone posted earlier in this thread and said "what's changed about Lloyds" ? Well the truth is quite a lot has. They now post HBOS merger have a mature business which is very UK centric, cannot easily expand (because of MMC rules) in it's traditional areas of business as it has such a big percentage of those markets already (thanks to the merger). So it is now being forced to go into areas of business which management has always kept away from...it is currently spending and time a lot of money hiring people to build at best a third tier investment banking business (they don't make money for anyone except the employees). To build a proper, credible and profitable investment banking arm will require a lot of money being invested over the first few years. My bet is management don't really understand what they are trying to do have been sold the story by their brokers/strategists and the people doing all the hiring and will give up when they realise how hard it is.

I am not a fan of RBS or Lloyds but personally I would say ultimately RBS might be a better punt....it's got a lot more st on it's balance sheet but it has much more diversity in it's income stream which ultimately should win through.

Edited by Beardy10 on Saturday 4th September 20:35

But (and this is just an opinion) Lloyds doesn't NEED to expand any more because its acquired HBOS? I'd say they just need to focus on what they already have and to increase profit per customer and make efficiencies within the business which they're already on course to do so?

That's true but the trouble with Lloyds is that whilst it has a good retail franchise i.e. bank accounts/mortgages etc that's a hugely competitive market and the latter is a lot less profitable than it once was because it's much harder for the bank to finance those loans. Retail banking will generally become less profitable with the likes of Tesco starting to flex their muscles. So they have to diversify and as they have virtually nothing overseas they "obvious" one is investment banking to leverage off some of their corporate relationships with small mid size UK companies. Cast your mind back to before the banking crisis...Lloyds was seen as a dividend stock with a decidedly unexciting growth potential.

[ringram]

The European Competition Commission has been telling various banks and governments to divest, cut and downscale the banks. Aka RBS etc. Lloyds merger with HBOS would never have got through the competition commission. So all that needs to be borne in mind, they may have to sell off some jewels etc to comply with European competition law etc. Until that clears away their value is speculative surely..

[s111dpc]

Beardy10 said:

Seany88 said:

Beardy10 said:

Lloyds like every other bank is a punt of the UK economy....but it's a bigger punt (as is RBS) as if we do see a double dip (have we come out of the first?) they're are not in a strong position...normally a bank has built up good reserves during the boom before the bust.

Someone posted earlier in this thread and said "what's changed about Lloyds" ? Well the truth is quite a lot has. They now post HBOS merger have a mature business which is very UK centric, cannot easily expand (because of MMC rules) in it's traditional areas of business as it has such a big percentage of those markets already (thanks to the merger). So it is now being forced to go into areas of business which management has always kept away from...it is currently spending and time a lot of money hiring people to build at best a third tier investment banking business (they don't make money for anyone except the employees). To build a proper, credible and profitable investment banking arm will require a lot of money being invested over the first few years. My bet is management don't really understand what they are trying to do have been sold the story by their brokers/strategists and the people doing all the hiring and will give up when they realise how hard it is.

I am not a fan of RBS or Lloyds but personally I would say ultimately RBS might be a better punt....it's got a lot more st on it's balance sheet but it has much more diversity in it's income stream which ultimately should win through.

Edited by Beardy10 on Saturday 4th September 20:35

But (and this is just an opinion) Lloyds doesn't NEED to expand any more because its acquired HBOS? I'd say they just need to focus on what they already have and to increase profit per customer and make efficiencies within the business which they're already on course to do so?

That's true but the trouble with Lloyds is that whilst it has a good retail franchise i.e. bank accounts/mortgages etc that's a hugely competitive market and the latter is a lot less profitable than it once was because it's much harder for the bank to finance those loans. Retail banking will generally become less profitable with the likes of Tesco starting to flex their muscles. So they have to diversify and as they have virtually nothing overseas they "obvious" one is investment banking to leverage off some of their corporate relationships with small mid size UK companies. Cast your mind back to before the banking crisis...Lloyds was seen as a dividend stock with a decidedly unexciting growth potential.

True, but LBG don’t need to (and won’t be allowed to) expand in the UK, indeed they will be selling of branchs and customer base as a result of the EU ruling, but does need to diversify outside the UK once they have overcome the indigestion of swallowing HBOS. The risk is if they don’t they will be ripe for a buy out by a large international bank who want a foot hold in the UK market.

[Beardy10]

s111dpc said:

but does need to diversify outside the UK once they have overcome the indigestion of swallowing HBOS. The risk is if they don’t they will be ripe for a buy out by a large international bank who want a foot hold in the UK market.

That's true. The problem is management have no track record of either buying or running foreign business. I don't see HM Govt selling it's shares to a foreign buyer though...can you imagine the press when said buyer starts firing people?!. It's probably the most likely scenario in the very long term.

[Beardy10]

fesuvious said:

HMG do not hold a majority in Lloyds though..... So a buyer wouldn't be sacking anyone !

I thought they owned 50 something % so I think they do have a majority? HMG won't sell to a buyer without strong assurance abotu ongoing operation....unless they are completely deranged.

[s111dpc]

Beardy10 said:

fesuvious said:

HMG do not hold a majority in Lloyds though..... So a buyer wouldn't be sacking anyone !

I thought they owned 50 something % so I think they do have a majority? HMG won't sell to a buyer without strong assurance abotu ongoing operation....unless they are completely deranged.

41% and HMG wont be selling (in any significant amount) until later next year after to Banking Commission has reported - to do so beforehand could be construed as insider dealing!!

Edited by s111dpc on Monday 6th September 14:32

[Seany88]

Beardy10 said:

Seany88 said:

Beardy10 said:

Lloyds like every other bank is a punt of the UK economy....but it's a bigger punt (as is RBS) as if we do see a double dip (have we come out of the first?) they're are not in a strong position...normally a bank has built up good reserves during the boom before the bust.

Someone posted earlier in this thread and said "what's changed about Lloyds" ? Well the truth is quite a lot has. They now post HBOS merger have a mature business which is very UK centric, cannot easily expand (because of MMC rules) in it's traditional areas of business as it has such a big percentage of those markets already (thanks to the merger). So it is now being forced to go into areas of business which management has always kept away from...it is currently spending and time a lot of money hiring people to build at best a third tier investment banking business (they don't make money for anyone except the employees). To build a proper, credible and profitable investment banking arm will require a lot of money being invested over the first few years. My bet is management don't really understand what they are trying to do have been sold the story by their brokers/strategists and the people doing all the hiring and will give up when they realise how hard it is.

I am not a fan of RBS or Lloyds but personally I would say ultimately RBS might be a better punt....it's got a lot more st on it's balance sheet but it has much more diversity in it's income stream which ultimately should win through.

Edited by Beardy10 on Saturday 4th September 20:35

But (and this is just an opinion) Lloyds doesn't NEED to expand any more because its acquired HBOS? I'd say they just need to focus on what they already have and to increase profit per customer and make efficiencies within the business which they're already on course to do so?

That's true but the trouble with Lloyds is that whilst it has a good retail franchise i.e. bank accounts/mortgages etc that's a hugely competitive market and the latter is a lot less profitable than it once was because it's much harder for the bank to finance those loans. Retail banking will generally become less profitable with the likes of Tesco starting to flex their muscles. So they have to diversify and as they have virtually nothing overseas they "obvious" one is investment banking to leverage off some of their corporate relationships with small mid size UK companies. Cast your mind back to before the banking crisis...Lloyds was seen as a dividend stock with a decidedly unexciting growth potential.

I thought that mortgages were VERY profitable at the moment, what with interest rates at record lows yet mortgage rates still high? Combined with good solid deposits from retail banking isn't that the right path to rebuilding balance sheets and growing cash reserves?

I understand that the management have no record of international banking, but surely they just need to headhunt someone up to the job to take them forward?

[Beardy10]

Seany88 said:

I thought that mortgages were VERY profitable at the moment, what with interest rates at record lows yet mortgage rates still high? Combined with good solid deposits from retail banking isn't that the right path to rebuilding balance sheets and growing cash reserves?

I saw a headline somewhere about mortgages being very profitable the other day.....whilst that might be true today I am afraid it's only true because the govt do not only only these banks they are also lending them money through the liquidity scheme (we're talking many billions) which they are then lending to us. That money is gradually being repaid to HMG which means the banks will have to fund their normal mortgage business through money they can borrow through the unsecured markets (which funnily enough is very expensive) so margins on mortgage lending are slim to none. Their are also new rules which mean banks have to hold mroe capital against mortgages (the rate depends on the LTV) which again makes it more expensive business.

The glut of cheap mortgages we saw over the last 10 years was fueled by banks being able to securitise mortgages and sell them off to pension funds, insurance companies and other banks...that market is dead and will be for some time.

Or to put it simply....if it is VERY profitable why do so many people find it so hard to get mortgages ? Any business with big margins generally sees a lot of competition.

[Seany88]

Beardy10 said:

Seany88 said:

I thought that mortgages were VERY profitable at the moment, what with interest rates at record lows yet mortgage rates still high? Combined with good solid deposits from retail banking isn't that the right path to rebuilding balance sheets and growing cash reserves?

I saw a headline somewhere about mortgages being very profitable the other day.....whilst that might be true today I am afraid it's only true because the govt do not only only these banks they are also lending them money through the liquidity scheme (we're talking many billions) which they are then lending to us. That money is gradually being repaid to HMG which means the banks will have to fund their normal mortgage business through money they can borrow through the unsecured markets (which funnily enough is very expensive) so margins on mortgage lending are slim to none. Their are also new rules which mean banks have to hold mroe capital against mortgages (the rate depends on the LTV) which again makes it more expensive business.

The glut of cheap mortgages we saw over the last 10 years was fueled by banks being able to securitise mortgages and sell them off to pension funds, insurance companies and other banks...that market is dead and will be for some time.

Or to put it simply....if it is VERY profitable why do so many people find it so hard to get mortgages ? Any business with big margins generally sees a lot of competition.

Isn't LIBOR at something like 0.7% at the minute? I think only people without security/good credit are finding it hard to get mortgages i.e. those who have unfortunately bought at too high a price, or low deposit, etc?

[munky]

Seany88 said:

Beardy10 said:

Seany88 said:

I thought that mortgages were VERY profitable at the moment, what with interest rates at record lows yet mortgage rates still high? Combined with good solid deposits from retail banking isn't that the right path to rebuilding balance sheets and growing cash reserves?

I saw a headline somewhere about mortgages being very profitable the other day.....whilst that might be true today I am afraid it's only true because the govt do not only only these banks they are also lending them money through the liquidity scheme (we're talking many billions) which they are then lending to us. That money is gradually being repaid to HMG which means the banks will have to fund their normal mortgage business through money they can borrow through the unsecured markets (which funnily enough is very expensive) so margins on mortgage lending are slim to none. Their are also new rules which mean banks have to hold mroe capital against mortgages (the rate depends on the LTV) which again makes it more expensive business.

The glut of cheap mortgages we saw over the last 10 years was fueled by banks being able to securitise mortgages and sell them off to pension funds, insurance companies and other banks...that market is dead and will be for some time.

Or to put it simply....if it is VERY profitable why do so many people find it so hard to get mortgages ? Any business with big margins generally sees a lot of competition.

Isn't LIBOR at something like 0.7% at the minute? I think only people without security/good credit are finding it hard to get mortgages i.e. those who have unfortunately bought at too high a price, or low deposit, etc?

3 month libor is indeed about 0.7 but then 2 points: 1) mortgages can be had for 2.19% (HSBC) so that's not a huge margin considering the credit risk they're taking on, and the maturity transformation (borrowing 3 months, lending 25 years). And 2) sensible banks are trying to wean themselves off of short term funding in favour of longer term (hence they are pushing fixed term bonds to customers - 1 yr, 3 yr etc) financing. This costs more than libor, eroding the margin on mortgages.

[Beardy10]

munky said:

Seany88 said:

Beardy10 said:

Seany88 said:

I thought that mortgages were VERY profitable at the moment, what with interest rates at record lows yet mortgage rates still high? Combined with good solid deposits from retail banking isn't that the right path to rebuilding balance sheets and growing cash reserves?

I saw a headline somewhere about mortgages being very profitable the other day.....whilst that might be true today I am afraid it's only true because the govt do not only only these banks they are also lending them money through the liquidity scheme (we're talking many billions) which they are then lending to us. That money is gradually being repaid to HMG which means the banks will have to fund their normal mortgage business through money they can borrow through the unsecured markets (which funnily enough is very expensive) so margins on mortgage lending are slim to none. Their are also new rules which mean banks have to hold mroe capital against mortgages (the rate depends on the LTV) which again makes it more expensive business.

The glut of cheap mortgages we saw over the last 10 years was fueled by banks being able to securitise mortgages and sell them off to pension funds, insurance companies and other banks...that market is dead and will be for some time.

Or to put it simply....if it is VERY profitable why do so many people find it so hard to get mortgages ? Any business with big margins generally sees a lot of competition.

Isn't LIBOR at something like 0.7% at the minute? I think only people without security/good credit are finding it hard to get mortgages i.e. those who have unfortunately bought at too high a price, or low deposit, etc?

3 month libor is indeed about 0.7 but then 2 points: 1) mortgages can be had for 2.19% (HSBC) so that's not a huge margin considering the credit risk they're taking on, and the maturity transformation (borrowing 3 months, lending 25 years). And 2) sensible banks are trying to wean themselves off of short term funding in favour of longer term (hence they are pushing fixed term bonds to customers - 1 yr, 3 yr etc) financing. This costs more than libor, eroding the margin on mortgages.

Indeed. After all that's one of the reasons Northern Rock went tits....far too reliant on short term funding so when people get worried about the viability of your institution you have a run on the bank not just from deposit account holders but institutional lenders....it can go wrong literally overnight.

Libor is also not actually an index of actual transactions...it's a poll of banks views on where they "see" money offered for that maturity it is not where the actual market is which is a common misconcenption. That does not mean of course that people will actually lend them money there. So during the banking crisis lets say 3 month Libor was 2%....HSBC only had to pay 1.5% or less because everyone wanted to deposit money with them and the likes of RBS actually couldn't borrow any money at all.