Lloyds TSB Group PLC (LYG)

From a banking perspective, this is really leveraged to a lot of what is going on in the UK. UK economy is doing very well. This bank does not have a lot of investment banking. Have done a very good job of getting rid of assets they had in Spain and other parts of Europe. Primarily a domestic retail/commercial bank, and in this environment this is probably not a bad story. They trade at a premium to their BV, unlike a lot of other banks.

Move out to a US bank? Not a bad idea. Thinks the European banking system is going to recover. This bank still has difficulty. Got absorbed by the British government and was more confused than a lot of the others. European banks have not fully recovered yet, but he does anticipate the turn is coming.

Interest rate increase is coming into the US first. The UK doesn’t look ready to move just yet. As interest rates start to move up, the net interest margins for banks should start to expand. We have seen banks facing declining net interest margins. This means that the only way they can grow earnings is by either outright loans or fee income. As net interest margins go up, it will be good for banks. On this one, he is looking for at least 6 months or longer before the Bank of England starts raising rates. He prefers US banks.

The British government is selling their holdings and can do so because Lloyds has turned around. The share price is above what the British government paid to bail it out. It is doing sufficiently well and will probably start paying dividends.

British banks, in general, are not an area that he is focused on. If he is looking at financial institutions globally, he is favouring US over countries where you are not seeing the interest rate normalization just yet. Dividend yield of 1%.

This is a great bank. The British government owns something like 23% and are slowly exiting their position. It is very likely this bank will do incredibly well. The banking area is one of the cheaper areas of the equity markets.

The UK government is slowly getting out of this stock. LYG-N have gone back to the original retail banking. They are in a good position and the UK economy is coming along quite nicely. You will see dividend increases and the stock will do better.

This is a higher risk story and we are starting to see it playing out now. There will be some upside, but it will be a multiyear up cycle.

The UK government is going to sell their stake in this bank and is scheduled for 2016. When this happened in the US with Citibank (C-N) that was the start of everything when it had a big run. That will allow the bank to start issuing a dividend. At about the same time, there is the possibility of an interest rate rise. There are some very interesting catalysts. If you take a 3-5 year view, he thinks you are going to make some money.

The British government still owns around 20% . After results come out and when everyone knows what the profits are, it sells another tranche. This bank has even started to pay a small dividend. This is going to continue to have that basic supply by the British government, but they have done a very good job. Not a bad choice if you want a domestic UK bank.

A turnaround situation. There is a catch up in terms of companies that are recalibrating their business and operating efficiencies. Coming close to trading at a higher premium to its Book Value. You need to focus on the earnings power of the company and the return on investment equity. His concern is that there is still room to feel more comfortable given the massive amount of headwinds that these institutions are facing. He would be a little cautious.

It is okay to be selective in UK banks. He prefers HSBC. Likes the outlook in the UK. Asia will eventually come back into favour.

Probably sold it at the wrong time. Management did a great job of changing it around. The economy in the UK is doing well and he thinks it will continue to do so. The bank is fine. They understand retail very well. Got rid of non-core assets and can now grow the franchise. If they get back to 18-20% ROE that they had pre 2008 it will be a good story.

This is a good story. If you look at the global interest rate story, he thinks it will be US 1^st and the UK will probably be 2^nd in terms of raising rates. There was an 18 month time lag from when the US went into the hole and when the UK went into the hole. Continental Europe went in even further. With that time frame, interest rate increases are going to be very good for the banking sector. The US is probably going to see this first. This bank hasn’t introduced a dividend as far as he knows, and the government is selling down its stake from when it bailed the bank out. If this bank were to introduce a dividend, post the governments sell down, he thinks this bank would run. This could be a 2016 story. When it runs, it is going to be huge.

The US is closer to an interest rate hike and will propel those banks. The US banks are freshly recapitalized. In the UK that is not the case. This is a good bank. Sell if you bought before the crisis. If you bought afterwards, hold as it will be a multiyear success story. He holds HSBC-N broadly.