Shares across the banking sector have endured a torrid time since the start of 2016 as fears of another catastrophe in the global financial system reach fever pitch.
Concern over the extent of PPI-related claims has also been a major driver of this sector-wide weakness. Santander was forced to stash away another 450m in Q4to cover claims, while Lloyds is anticipated to rack up further substantial penalties Barclays Capital anticipates extra provisions of 800m to2bn when Lloyds reports later this month.
But while Lloyds has been by far the worst culprit in the PPI stakes (ithas put aside a mammoth 13.9bn to date) hefty asset sales and cost-cutting under its Simplification plan have left its balance sheet in relatively rude health.
Indeed, Lloyds steady capital build pushed its common equity tier 1 (CET1) ratio to a solid 13.7% as of September, up from 12.8% at the start of 2015. By comparison, Barclays CET1 figure was 11.1% at the end of Q3, while HSBC and Santander registered readings of 11.6% and 9.9%, respectively.
This leaves Lloyds in a stronger position than its sector peers should macroeconomic turbulence persist. And its more robust finances should also make it a sector favourite for those seeking dependable dividend growth in the near-term and beyond.
Lloyds is expected to throw out a dividend of 3.7p per share in 2016, up from a predicted 2.4p for 2015 and yielding 5.1%. Not only does this trounce an average of 3.5% for theFTSE 100, but readings of 3.6% for Barclays and 4.3% for Santander are also put to the sword, although it lags HSBCs gigantic 6.4% yield.
Risk profile is key
Despite alower yield relative to that of HSBC, Lloyds offers income huntersalower risk profile, providing it with greater earnings visibility and less chance of dividend volatility.
Like Santander, HSBCs heavy bias towards emerging markets leaves it at the mercy of sinking revenues incoolinggeographies. Indeed, Santander saw profits from Latin America a region from which almost 40%of profits are sourced slump 12% between October and December from the prior quarter, to 693m.
Barclays also hasa significant developing market exposure through its Barclaycard and Investment Bank divisions, and of course via its Africa Banking arm. Itsdecision last month to shutter investment banking operations across several Asia Pacific countries underlines the rising risks across these new territories.
Downscaling paying off
Lloyds extensive streamlining following the 2008/2009 global recession means it has neither clout in high-risk investment banking, nor any notable exposure to the current slowdown in foreign marketplaces.
This may undermine the banks long-term growth prospects relative to its peers as Imconvinced of the lucrative rewards on offer from Asia, Africa and Latin America as population levels and personal incomes detonate in the future.
But Lloyds focus on the British high street undoubtedly makes it a more secure stock pick than its rivals, a critical quality in the current environment.
So despiteLloyds expected 8% earnings fall in 2016, I believe a subsequent P/E rating of 9.6 times represents exceptional value and suggests the risks facing the bank are currently baked-in. I reckon Lloyds could prove a very wise selection for bargain hunters.