FTSE 100 constituent Lloyds Banking Group (LSE:LLOY) has been around in some shape or form since 1695. TSB Group first floated on the London Stock Exchange in 1986. It broke City of London records and raised more than £1.2bn in its IPO. In 1995, Lloyds Bank and TSB merged, creating Lloyds TSB. The 2008 financial crash destroyed consumer faith in banking, and the Lloyds share price has never fully recovered.
Lloyds TSB acquired HBOS in 2009 and became known as Lloyds Banking Group. As it was just after the financial crisis, Lloyds had to appeal for government help to complete the takeover, losing credibility.
Before the HBOS takeover, Lloyds was admired and assumed to have a strong capital base. In February 2007, the Lloyds share price reached a high of £6.18. By July 2008, it was trading around £3 a share, but within another eight months had collapsed to 40p and the bank was requesting a second government bailout. The government obliged, and the Lloyds share price continued its roller coaster ride.
In recent years, the PPI scandal has cost Lloyds more than £20bn in charges. Brexit remains a dark cloud on the horizon, adding further economic pressure to the country and its banks.
In 2014, Lloyds had a market cap of £57.7bn and was in seventh place among the largest UK listed companies. Today its market cap is £23.7bn, and it’s in position 22 of the FTSE 100.
Challenger banks pose a risk to Lloyds share price
Rising competition from challenger banks such as Monzo and Starling Bank are a real and present threat. Lloyds is attempting to keep up with these fintech competitors by revamping its banking app and improving its digital infrastructure. But that requires a serious cash injection. These new banks have risen from the ashes and distrust created in 2008. They are fresh, unencumbered by past scandals and appeal to tech-savvy youngsters.
Virgin Money is also looking to lure customers away from Lloyds and its peers, using Virgin Group offerings as bait. Wine, media packages, and gym memberships are all being used as incentives.
Crash and burn
The historical share price of Lloyds since 2009 makes depressing reading. Its share price reached 78p in 2010, collapsed to 23p in 2011, climbed back up to 86p in 2014, fluctuating between 74p and 88p for the following year. At this point it reinstated dividends and within a year the Lloyds share price had almost halved. Since then it’s never gone much above 70p, and this year, since the market crash, dividends were again cancelled and Lloyds share price has fluctuated erratically between 23p and 33p.
It seems to have become a plaything of day traders and without a dividend really doesn’t offer much to long-term value investors. Current expectations see the Bank of England maintaining low interest rates for some time. This won’t help profit growth or a sustainable rise in the share price.
With so much uncertainty in the world and debt at record levels, I don’t like the look of banks as a long-term investment. I think it’s going to take innovation to create growth opportunities. I don’t see any signs of innovation at Lloyds, and I’ll continue to steer clear.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020