3 reasons why the Lloyds share price (LSE: LLOY) could crash next week

Is FTSE 100 dividend stock Lloyds (LON: LLOY) a top buy ahead of next week’s results? Royston Wild suggests that the answer is “no.”

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and 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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »