Lloyds Banking Group PLC ADRLYG

Stock Research and Analysis

by Erin Davis

In September 2008, Lloyds TSB, now Lloyds Banking Group, announced plans to acquire HBOS at what amounted to a fire-sale price, thus tying its fate to that of its struggling competitor. As a stand-alone company, Lloyds was a top-quality, profitable Read more

Bulls Say

Lloyds' acquisition of HBOS will make it a powerhouse in U.K. banking, controlling some 50% of the savings market. Moreover, the knockdown price Lloyds paid for HBOS should translate into even higher profitability in the future.

Lloyds' Scottish Widows insurance unit is beginning to deliver solid economic profits after introducing new products and enforcing capital discipline.

An investment in a state-of-the-art customer-management system has enabled Lloyds to increase wallet share and switching costs, allowing the company to retain more retail customers than its competitors.

Management's focus on costs, economic profitability, and efficient growth has led to returns on equity in the mid-20s and a huge dividend yield. Read more

Bears Say

HBOS was a much less conservative lender than Lloyds, and Lloyds will be left holding the bag if falling property prices cause HBOS' charge-offs to increase to unmanageable levels.

U.K. property prices, which appreciated rapidly over the past several years, are falling rapidly. Delinquencies are rising rapidly and cutting deeply into Lloyds' profitability.

Lloyds' relentless focus on costs could cause it to underinvest in personnel, marketing, and technology.

Lloyds' reliance on government assistance in the wake of the HBOS merger means that the U.K. government now has substantial influence over the bank's business practices and makes it more likely that the bank will make uneconomical business decisions. Read more

Strategy

Lloyds' strategy is to focus on its core retail banking and life insurance businesses, where it can sustain its competitive advantages, and on carefully controlling costs. The bank emphasizes improving Read more

Management

Lloyds management has come under fire in the wake of its disastrous acquisition of HBOS. CEO Eric Daniels has managed to retain his position for now, but chairman Victor Blank retired under pressure and was replaced by Winfried Bischoff in September. Read more

Profile

London-based Lloyds Banking Group is a financial services firm that operates primarily in the United Kingdom through its retail bank, insurance group, and wholesale and Read more

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