Yahoo Finance Jim Armitage: Lloyds' vast market share makes it a winner
It’s been a long time coming, but in some ways Lloyds’ crazed takeover of HBOS is bearing fruit.
Sure, its due diligence was — ahem — a touch lacking. Billions of taxpayers’ bailout cash and a near-wipeout of his shareholders bears testimony to that.
But now, nearly nine years on, Lloyds emerges with a healthy balance sheet, a 25% share of the current account market, and one in five of every small and medium-sized business on its books.
That’s a dominant position that would never have been allowed had the HBOS deal not been done in the nation’s hour of desperate need.
Shareholders who were with the bank at the time of the deal will never get back into the black (the shares were 400p even during the 2008 financial crisis) but those who’ve signed up for the ride since now own a business with an outrageously strong grip on the market.
For all the noise around the plucky challenger banks, beyond Nationwide and Santander, they remain tiny and will remain so even after the inevitable consolidation of the coming years.
Like Tesco in supermarkets, Lloyds’ vast size means it has to be the long-term winner in High Street lending, both when it comes to cost efficiencies and pricing power. With such market dominance, it doesn’t need to chase after business in the way its smaller rivals do. Unlike them, it can afford to be picky, deliberately reducing its exposure to the cut-throat mortgage market and cutting rates for savers to protect its net interest margins. Lloyds’ margin today rose to 2.7% compared with Metro’s 2%.
So if, and when, businesses’ demand for borrowing worsens further, you’d rather be owning shares in Lloyds than, say, Aldermore. If, and when, retail banking’s bad debts jump, or lending falls, you’d rather be in Lloyds than Metro Bank or Atom.
That’s not to say there aren’t continuing risks in backing the High Street superpower. Lloyds shares remain a big gamble on the confidence of the British consumer. It has just extended that gamble by buying MBNA’s unsecured credit card debt for a price nobody else was willing to pay at the most benign time for lenders in a generation. The old HBOS still has the power to shock, as events at its Reading operation have shown. But if anybody has the power in the market to keep lending sensibly, it’s Lloyds.
Only rarely do I find myself congratulating remuneration committees, but credit to Lloyds’ for not bowing to pressure to dock Antonio Horta-Osorio’s pay over last year’s exposés of his private life. Reports said the bank was going to cut his pay to reflect “reputational damage” to the bank. Moralising nonsense.