Lloyds TSB Group PLC (LYG)

Will require more capital yet. Wait for British gov’t capital to be withdrawn from the stock.

Likes it. It was a great company and it will continue to become a great company again. It’s not expensive. 8 times earnings and below tangible book. They are restructuring. This is a retail bank in the UK, but is a country that is slowly getting back on its feet. It’s a longer term thing.

First thing you have to think about is that European banks in general have to be recapitalized and that is a substantial challenge. This could mean a lot of equity can get crushed and ultimately result in something like a 10 to 1 crushing. The exposure this bank has from a UK point of view, is that it is in a very tough situation.

His feeling on European banks is to stay away. Britain recapitalized their banking systems. Liquidity tests that they did over the last couple of years were very soft. As the recession continues to bite in Europe, you are going to find that the reserve loss ratios are going to blow out and that is going to eat into the capital ratios. US banking system is a much better place to be as they have been freshly recapitalized and are paying dividends now.

In terms of banking in Europe, his general answer is “be very careful”. Europe needs to recapitalize its banks. Region is generally going into recession. Losses are going to hit the banks. There is really no growth here. A better place to look is in the US where banks have been freshly recapitalized.

This is one of the wonderful looking charts which had its gigantic down movement through 2011 and then formed an absolutely perfect base. Picture-perfect for what he looks at in the stock. Stock is a little bit overbought so it could pull back.

British economy is still struggling. You have to look at any European bank at this point as having an awful lot of exposure to an area that has a very uncertain economic future ahead of it. Still too many headwinds.

Recent stress test last year suggested all the big banks were fine. Prefers Canadian banks.

He keeps looking at it. International banks are a great sector. This one is interesting. You have to watch for the dangers. If he owned it he would look at why he bought it. It is a good play for the possibility of a huge gain, but there is still risk. It is his idea of contrarian investing.

Looked at this one recently but it is one of those companies that is in his wheelhouse. In terms of international banks outside of the US, this is one that is quite interesting and could have a tremendous recovery. Quite a bit of risk but a lot of reward potential.

(Top Pick Sept 2/11. Up 16.43%.) Sold it because it broke down technically for him. This is a sector that you really need to be in for the longer-term. You can do really quite well with these things. As they make more money, they will pay bigger and bigger dividends.