Keep clear of Lloyds Banking Group
The latest set of results from Britain's biggest mortgage lender aren't pretty. And with all the uncertainty about the economy, the safest thing is to steer well clear of Lloyds shares, says David Stevenson.
Banks stuff their results reports with so much jargon that it can be hard to get to the bottom line. But when you finally get there at Lloyds Banking Group (LLOY), Britain's biggest mortgage lender, what you'll find isn't pretty. The bank has just reported a pre-tax loss of £3.9bn for the first nine months of 2011.
OK, mis-selling payment protection insurance blew a £3.2bn hole in the figures. Other provisions and write-offs claimed another £2.4bn. But even allowing for these, pre-tax profits still dropped 30%. And that's despite a lower-than-expected charge for bad loans.
What did the bank say about the figures?
Lloyds has made "further progress in reducing the group's risk", says interim boss Tim Tookey. In other words, the bank has been selling off assets to try to smarten up its balance sheet. And costs are being trimmed back too operating expenses dropped by 3%.
What about the outlook?
It's not too bright. The bank admits it could miss some of the financial targets that it set just four months ago "if weak economic conditions persist". So the bank is "re-assessing assumptions". In other words, future figures are likely to turn out worse than expected.
Meanwhile, and adding to the uncertainty, ex-Santander UK chief and former Goldman Sachs banker Antonio Horta-Osorio has been forced to step down for the moment due to ill-health.
What are the analysts saying?
Of the 32 analysts surveyed by Bloomberg, 12 say "buy", 12 say "hold" and eight say "sell". But the average price target is 49p 70% above the current share price.
Since our "avoid" advice on both 17 June and 4 August this year, the shares have dropped by 38% and 15% respectively. With all the uncertainty surrounding both the economy and the bank, we'd stick to our view keep clear.