Opinions
Darren Sissons
Lloyds TSB Group PLC
LYG-N
COMMENT
Oct 13, 2017
$3.580
Stock price when the opinion was issued
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DON'T BUY
He sold in 2013/14 because cross selling did not work. They were going to increase returns to shareholders and that did not materialize. As a British bank they are in a better position than a European bank. But he does not want to be a British bank because the American markets have access to your capital. He thinks the outperformance of non-Canadian banks is probably over.
banks
BUY
There is so much regulation in Europe they are becoming more like utilities. They are required to hold larger reserves, for example. US banks for reemerged faster than European banks only because they hit the crisis two years earlier. The European economy is slow, but high-quality banks like this one could be a good quality buy. They are raising dividends as well.
banks
DON'T BUY
Will it go up after Brexit? Used to own it maybe till 2015. He expected them to release capital and raise their dividend, but they didn't that much. They were unsuccessful in cross-selling their clients across mortgages, lines of credit and investment accounts. Overall, LYG hasn't done well since then.
banks
BUY
The consensus is that the UK will have a successful exit at the end of the month. With that, there is a backdrop where the political overhang will be removed and the economy has a chance to restructure and the situation afterwards will probably be better. LYG-T is primarily exposed to UK companies.
banks
The overriding issue for them is that it is very much a UK centric story. In the context of a BREXIT, there is likely to be some downside on GDP growth for the UK economy, maybe 5% per year for 4 or 5 years until everything normalizes. Thereafter, there might be some growth. In the interim, you will likely see higher interest rates for banks, but you will see contracting earnings opportunities. You want to look at banks that have UK exposure, but also outside growth. He would suggest looking at HSBC Holdings (HSBC-N) or Banco Santander (SAN-N).