Are you wondering whether you read that right, that Lloyds Banking Group (LSE: LLOY) shares actually rose in September, by 8%?
Politics has been making mincemeat of our economic outlook. Parliament is back after Prime Minister Boris Johnsons prorogation was found to have been illegal by the Supreme Court, business leaders are increasingly frustrated at political aspirations apparently being prioritised over whats best for British business, and Europes politicians are growing ever more annoyed at the UKs Brexit dithering thats gone on for three years now.
With the PM apparently still adamant that he wont ask Brussels for another delay, despite losing his case in Parliament, just about everyone I listen to these days seems to think a no-deal Brexit is now almost certain, and that well wake up on 1 November facing the prospect of a years-long recession.
Bad news
That, as Im sure you dont need me to tell you, would not be good news for Lloyds. Since the banking crisis and its taxpayer bailout, Lloyds has turned its back on the high-risk international banking markets that went so badly wrong, and kept its sights firmly on the UKs domestic banking sector.
Im convinced thats been a good move, but if the UK economy is now set to spend a few years as possibly the worst performing in the developed world, the timing might just stink.
Even as I write these words, news has emerged that UK house price growth, based on September figures, has almost ground to a halt in the words of the Nationwide building society. While I think thats actually not such a bad thing, as the trend of working people being increasingly unable to afford to buy their own homes is a growing hardship, any slowing in mortgage borrowing would not be good for Lloyds.
And any forthcoming recession is surely going to hit the business loans segment of Lloyds operations too, so why have the banks shares picked up a little in such a tumultuous month?
PPI
It surely cant be the end of the PPI claims period, which has admittedly removed one of the uncertainties surrounding Lloyds. Because it has, unfortunately, replaced that uncertainty with a certainty thats turned out worse than most peoples gloomiest expectations.
The final PPI cost to Lloyds looks like being around 22bn, which has led to the bank suspending its share buyback programme and has raised fears that the dividend could come under pressure.
The pessimist in me wonders if Septembers gain is just one of those random moves against the trend, and fears the Lloyds price might just turn around again and start heading further south in October. But then I look at the valuation metrics for Lloyds, and wonder whether investors have simply, finally, decided that all of the possible bad news is already built into the share price.
We are, after all, looking at forward price-to-earnings multiples of only around 7.3, which is about half the FTSE 100s long-term average. And the predicted dividend, it it materialises, would yield more than 6%.
There are short-term risks for Lloyds, for sure, but as a long-term shareholder, Im still holding and Im happily pocketing my dividends.
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