You might have expected investors to cheer Tuesdays 35% rise in underlying Q3 profits at Lloyds Banking Group (LSE: LLOY) to nearly 6bn. Instead, the share price fell nearly 3%. Some people are never satisfied.
Well, Im not complaining. I see the results as further sign that Lloyds is on the right track, and now could be the time to pop it in your portfolio.
The 3% rise in group income to 13.89bn is a reminder of the size and scale of this mighty operation, while the 59% fall in impairment charges to 1.02bn suggests the toxic swamp is being drained, and Lloyds will continue tobenefit from the UK recovery.
Lloydsstill has a long way to go before becoming the glorious dividend machine of yore, but it will get there, and the earlier you hop on board, the more rewarding the ride.
Blood On The High Street
Bloodthirsty investors were cheered by the news that Lloyds was axeing 9,000 innocent jobs and 200 unsuspecting branches, as part of itssimplification programme, that should deliver 1bn of savings by 2017.
Culling branches may bring pain to the UK high street and some (mostly older) customers, but Lloyds is right to recognise that digital is the future, and invest 1bn in it.
I cant remember the last time I stepped foot inside a bank. I dont need to, I have a computer.
I accept that Lloyds has plenty of challenges. The PPI scandal rolls on costing 11bn and rising, and you cant rule out further costly banking scandals.
Like all UK banks, it faces a threat from the new breed of challengers such as M&S Bank, Tesco Bank and Virgin Money, who could steadily eat into market share.
Lloyds hasnt paid a dividend since 2008, and given its relatively poor capital position in recent European stress tests, investors may have to be patient a little longer.
Plus there is stillthe questionof when to the government will offload itsremaining 25% stake.
Keep It Simple
Deposits are growing strongly, however, reducing Lloyds wholesale funding requirements, while continuing low interest rates will keep impairments to a minimum.
Best of all, Lloyds is reducing its presence from more than 30 countries to seven, leaving it a play on the rapidly recovering UK.
As the simplification process continues, investors will find it easier to decipher the Lloyds balance sheet, and rest easy, the dividend will eventually come.
If I was buying one bank to hold for the long-term, Lloyds would be it.
You might take a different view. Barclays is down 25% in a year, so maybe that’s ripe for recovery.
Or maybe you reckon Royal Bank of Scotland Group has better prospects.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.