Lloyds Bank (LON: LLOY) shares we'd expect to be doing well right around now. True, they're up perhaps 1% on the day and are London's most traded stocks far this morning. We'd expect them to do well because their recent results were good. On the other hand there's all that worry about the banking system more generally given Silicon Valley Bank followed by the absurdities at Credit Suisse.
It's worth reminding ourselves here that Silicon Valley Bank went bust because it had lost its capital. True, it needed a bank run to make this plain and obvious (in detail, the losses on their hold to maturity book only bust them when that book had to be liquidated to gain liquidity) but they had actually lost the cash. Credit Suisse had plenty of capital, even if it hadn't been done all that well for years, but was solvent even if illiquid. CS died because the bank run could not be stopped, not because there was no money left.
Lloyds Bank share price from London Stock Exchange
The strength of Lloyds Bank shares is that they've just reported their annual results. The net profit is flat, but then the 2021 profits were more than a little flattered by writing back some loan loss provisions. The more important part is perhaps that net income(largely, but not entirely, the difference between lending and deposit rates) is up by 14% to £18 billion. This is normal for a bank at this stage of the monetary cycle. When interest rates are rising the amount that can be charged to borrowers rises faster than what has to be paid to depositors. This expands that interest margin - “a stronger banking net interest margin of 2.94 per cent in the year (3.22 per cent in the fourth quarter)”. We would all rather expect this to continue given that the Bank of England just raised rates again.
However, there's also that problem of the general view of banking stocks right now. If even Credit Suisse can go down then who knows where the contagion will be next? And we should recall that Lloyds did nearly go under a decade and a half back. So the valuation of LLOY shares is a bit of one and the other. The bank's results look strong but the sector as a whole is definitely out of fashion.
