The last time I wrote about Lloyds Bank (LSE: LLOY) two weeks ago, it was fresh from a 14% increase in share price over the past weeks. The motivation for writing about it was to figure out if there was more steam left in the stock, and indeed there was. But I was still uncomfortable about the steep increase and was of the view that it should be bought on a dip.
Brexit sensitivity
That time is now. From the time that article was published to the last close, the share price is down by almost 7% for a whole host of reasons. Even though the EU and the UK have reached an agreement on Brexit extension, a relief to all who feared the aftermath of a hard exit and the consequent impact on the British economy, the fact remains that there’s no deal in sight.
In fact, with the general election now scheduled for early December, there’s only more uncertainty in the mix. It’s no surprise that this impacts LLOY, given how closely banks’ fortunes are linked with the UK macroeconomy. In fact, it’s even more impacted than peers like HSBC because of its UK-focused operations compared with the other’s more geographically diverse position.
Bank of England maintains status quo
Further, the Bank of England (BoE) left the bank rate unchanged at 0.75% in its monetary policy meeting today. A rate cut would have meant lower overnight borrowing rates for retail banks, which could, at least theoretically, have been passed on to banks’ customers. This in turn could encourage economy wide borrowing.
The BoE, however, felt the UK’s economic prospects are looking just fine enough to hold interest rates exactly where they are. This is a possible reason why the share price fell further at the last close. Ironically enough, the BoE’s non-move is actually a positive for LLOY, which would be the first to suffer if the UK were to hit a recession. In short, there’s more good than bad for it in this decision today.
The promise of good health
Even otherwise, I remain bullish on the bank. It’s true that unanticipated PPI claims were a real party pooper for its latest earnings release for the nine months up to 30 September. But its lending continues to grow and it’s positive on the future as well.
Being a bank, its share price will always be subject to broader conditions, whether they are policy deadlocks or cyclical downswings but the reverse is also true. As long as LLOY is in good health, I wager that its price will hold a lot of potential in good times. This in turn offers investors plenty of opportunities to cash out with gains. I would strongly consider buying some of its shares today.
