In this article I’ll explain what could be in store for Lloyds Banking Group (LSE: LLOY) and its share price next week. So let’s deal with the elephant in the room straight-off: third-quarter trading details for the Black Horse Bank might be scheduled for Thursday the 31st but they threaten to be overshadowed by Brexit-related events in Westminster.
As things stand, Parliament still hasn’t passed the Prime Minister’s withdrawal agreement bill. It looks set to torpedo Johnson’s attempts to hold a general election in early December, too. And it is waiting for the European Union to set the terms of Brexit extension, while Brussels lawmakers reciprocally look for clarity in the Commons over next steps.
Things are clearly far from resolved and as it stands the UK remains on course for a catastrophic no-deal Brexit next week, a shocking state of affairs for cyclical firms with a high gearing to the domestic economy like Lloyds.
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Fresh PPI pressure
Aside from the spectre of fresh political turbulence, however, there’s a lot to fear from those upcoming numbers for the July to September period, as recent updates from Barclays and Royal Bank of Scotland showed.
Crushing PPI bills have long been a problem for the banking sector, of course, but the cost of this saga was supercharged following a rush of applications in the run-up to the August claims deadline. The scale of the impact has taken the major high street operators by surprise. RBS has been forced to stash away an extra £900m for the third quarter but this pales in comparison to the additional £1.5bn Barclays has set aside.
Back in early September, Lloyds said that it was hiking provisions by as much as £1.8bn following the recent claims glut. But I can easily see this figure being hiked given that the bank has had a further seven weeks to reflect. And as I explained recently, I fear that this could have huge ramifications for the bank’s 5.8% dividend yield.
Sales and impairment fears
It’s also quite probable that Lloyds will report that revenues have continued to slide amid the toughening economic conditions and an increasingly-competitive marketplace.
Results from its big-cap peers in recent days certainly add to the sense that another disappointing update could be around the corner. Barclays said that revenues at its Barclays UK arm dropped 2% in the three months to September, while RBS saw turnover from its retail and commercial divisions slip around 3% in the same period.
Last time Lloyds updated the market it advised that income slipped 2% between January and June, to £8.82bn, a result that pushed pre-tax profits 7% lower to £2.9bn. It also reported a sharp uptick in impairments (up 27%), which is something else that share pickers need to be prepared for.
Now the Lloyds share price has surged almost 20% in just two-and-a-half weeks to current levels around 60p, built on shaky hopes of a Brexit deal. But these heady gains put it in extra danger of sinking in the days ahead. For my money the banking giant remains a blue chip to be avoided at all costs.
