script, different cast. Eric Daniels is still in the role of greedy banker, but the morally outraged chorus is now played by Messrs Cameron, Osborne and Cable. “Lend to every two-bit small business that asks for cash,” they chant, with just as much zeal as their predecessors, Brown, Darling and Mandelson. Of course, they want Lloyds – and every other bank – to lend injudiciously while also boosting capital ratios and profits, allowing the government to sell its stake at an impressive profit. The coalition obviously thinks it is starring in an impossible fantasy.
Look behind the bank-bashing bravado, and you can see that Lloyds has turned the corner. A much-improved net interest margin was the biggest surprise; more aggressive pricing has helped the bank push it up by over 30 basis points, from 1.72 per cent a year ago to 2.08 per cent. As expected, loan impairments are also falling, from £13.5bn a year ago to £6.5bn, and will continue to tumble as the recovery gathers pace. Although it will still go down as one of the worst decisions in British corporate history, the integration of HBOS is well under way: the bank is on track to make £1.3bn of annualised cost savings, putting the £2bn target within reach.
Lloyds’ stock is trading broadly in line with its tangible net worth, but it’s likely worth more. Regulatory and economic uncertainty will understandably weigh on the shares, but this is a turnaround story in full swing. The naysayers said the day would never come, but it’s time to buy Lloyds.