At an unusual AGM, bank chiefs commit to resuming shareholder returns, but when?
An AGM without rank-and-file shareholders in attendance took Lloyds Banking Group (LSE:LLOY) bosses out of the firing line today after another year of share price disappointment.
Covid-19 restrictions meant the usually well-attended gathering was replaced by a virtual event beamed from the company's offices in Edinburgh. Shareholders heard updates from chairman Lord Blackwell and CEO António Horta-Osório, who also answered pre-submitted questions.
The focus of their speeches was understandably on the lender's response to helping households and businesses survive the Covid-19 crisis. This has included the approval of £1.1 billion of loans under the Coronavirus Business Interruption Scheme and more than £3.6 billion under the Bounce Back Loan scheme. The company is also offering fee-free overdrafts up to £500.
The balance sheet uncertainty caused by Covid-19, has meant shareholders of Lloyds and other UK-listed lenders won't be getting dividends this year, after they agreed to comply with a request from the Prudential Regulation Authority. Lord Blackwell said the decision was not taken lightly but that it was the right thing to do in the “current exceptional circumstances”.
He sought to reassure shareholders that the board was committed to returning surplus capital to shareholders “in due course” through both dividends and share buy backs.
Lord Blackwell told them:
“While we have held back on the payment of dividends, I am well aware that any surplus capital in the business still belongs to you as shareholders.”
The loss of the dividend and a bigger-than-expected first-quarter impairment charge of £1.4 billion to cover rising bad debts, mean that Lloyds Banking Group shares are below 30p for the first time in eight years. They were more than 3% lower after the AGM at 28.8p.
Covid-19 has caused the company to halve in value, although, even before the pandemic struck, the shares were at a lowly 60p after under-performing the wider FTSE 100 index.
Source: TradingView. Past performance is not a guide to future performance.
Despite a number of false dawns, analysts continue to rate the stock as a ‘buy’. It is on an undemanding valuation and its likely ability to weather a crisis such as Covid-19 provides some longer-term comfort after improving its capital cushion to 14.2% in the most recent results.
The lender has long been regarded as a tightly-run ship, and there are other reasons for optimism, such as its leading digital presence at a time of increased remote working.
There are still significant near-term challenges to overcome, such as lower customer activity in the current quarter and the potential income impact from payment holidays on mortgages, credit cards and personal and business loans.
Analysts at UBS are more optimistic about UK banking's longer-term prospects, however, with Lloyds on a price target of 45p.
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