Analysts Unconcerned by Lloyds £226m Fine

Lloyds has reached an agreement to pay £226 million for fixing Libor rate, but this is less than 9% of projected 2014 earnings for the bank and they have suffered worse fines

Erin Davis 29 July, 2014 | 4:57PM
Facebook Twitter LinkedIn

Lloyds (LLOY) announced Monday that it had reached an agreement with U.K. and U.S. authorities to settle charges that the bank illegally manipulated Libor and sterling repo rates between 2006 and 2009 for a total of £226 million. The £226 million in fines is less than 9% of our projected 2014 earnings for the bank and does not affect our long-term projections or fair value estimate for the narrow-moat bank.

While many large banks' recent regulatory settlements revealed evidence of widespread misdoing, Lloyds' settlement was quite the opposite. In fact, while regulators said in statements that Lloyds' behaviour was "reprehensible and clearly unlawful" and "serious misconduct," they also noted in public statements that the abuse was "lower than at other firms" and "not pervasive." We're hopeful that this indication of a better-than-average standard of conduct, combined with Lloyds' substantial scaling back of risks since the financial crisis, may mean lower-than-average regulatory charges are ahead for shareholders. Our hopefulness is tempered, however, as we recall the £10 billion that the payment protection insurance scandal has cost Lloyds' shareholders in recent years.

Lloyds nearly destroyed itself in 2008 with its ill-considered acquisition of HBOS, and the U.K. government ended up with 43.5% of the combined group. Now, after years of bailouts and setbacks, the bank has come a long way in righting itself, and the government has begun selling down its stake. We're encouraged that the U.K. recovery is gaining speed, but we think a return to normalcy is years away. Still, we think that Lloyds’ shrinking noncore division and the tapering of scandals mean that shareholders can look forward to improving returns – we expect the bank to materially out earn its 10% cost of equity by 2015.Lloyds has closed HBOS’ worst businesses, wrote down much of its bad assets, and is close to re-emerging as the powerhouse U.K. bank that it once was.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lloyds Banking Group PLC46.48 GBP0.00Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.