Lloyds Bank

Lloyds Bank

In the depths of the 2011 Eurozone crisis banks were out of favour with investors, but it was during this time that Legatum made a significant investment in Lloyds Bank.

Learn more
Lloyds Bank

Lloyds Bank

In the depths of the 2011 Eurozone crisis banks were out of favour with investors, but it was during this time that Legatum made a significant investment in Lloyds Bank.

lloyds-image2.jpg
lloyds-stats.jpg

Identifying Deep Value

Lloyds was trading at a distressed valuation of 0.3x book due to a drastic slowdown in the macro environment. This led to a collapse in loan growth along with accelerated losses from asset impairments in Lloyds’ non-core assets.

Legatum’s investment team analysed the core and non-core businesses separately. Recognising the value of Lloyds’ core retail business, the team concluded that the key impediment to realising Lloyds’ intrinsic value was the significant uncertainty around how to price the risk from Lloyds’ non-core business. 

Taking this into consideration, our team believed that the Lloyds shares were worth at least 2x their market price.

Our investment thesis was based on reducing this uncertainty, enabling the investment community to revalue the stock more favourably. Legatum engaged with Lloyds’ senior management and encouraged them to provide clarity to the market on their strategy for managing non-core assets, even if it meant recognising impairments and publishing ‘bad news’ in the short-term.

Following a concerted effort by Lloyds to manage non-core assets and educate investors on the substantial disconnect between Lloyds’ market value and intrinsic value, the company’s stock price more than doubled in the 24 months that followed.

lloyds-image.jpg

The Lloyds Group has over 30 million customers and is the UK's leading provider of current accounts, savings, personal loads, credit cards and mortgages.

Investment Highlights

icon1.png

A quality banking franchise

Lloyds had one of the strongest deposit franchises in the U.K. and a strong commitment to building their profitable retail mortgage business. This strong core business was overshadowed by their non-core business, together with the market’s increasing focus on the PIIGS where Lloyds had very little exposure. Ultimately this led to a great company being available for a great price!  

icon2.png

Positive Management Change

Lloyds' new management team, led by António Horta-Osório, began to return the company’s focus to the core retail business, downsizing or selling non-core assets. This allowed the company to gain strength, focus and momentum.

icon3.png (1)

Stock Price Increase

A significant de-risking of the loan portfolio through disposals of non-core assets led to decreased concerns about liquidity and the stock price converged towards 1x book value. As soon as it became clear that solvency was not an issue, the stock became investable again and the market was able to focus on the long-term earnings power of the core business.

lloyds-prosperity-rank.jpg