Shares in Lloyds Banking Group (LSE: LLOY) took one of the worst Brexit poundings of all, losing a huge 34% between the day of the referendum and 6 July.
But, since then, we’ve seen a bit of a turnaround, and the shares are up 29% from their low point to 61.4p as I write. That’s still a 15% fall overall, but it’s less than half the original collapse, and it reminds me of one of my favourite investing lessons — whenever there’s bad news, the market always overreacts in the short term.
One unfortunate result of the Brexit vote was that the Government’s planned retail share offer, intended to give ordinary investors the chance to buy up some of the taxpayers’ stake in the bank, was cancelled.
But that might have actually helped firm up the share price a little — one big sell-off would have likely triggered a price fall, whereas the new plan for the shares to be “gradually sold in the market over time, in an orderly and measured way” (in the words of the government’s response to the public petition over the issue, which otherwise dismissed our complaints) should minimize that effect.
Will they move?
The possibility that the UK’s banks could move their headquarters away from the UK, if it looks like EU passporting rights will be lost, will also have lifted confidence a little. Last month, chief executive of the British Bankers’ Association, Anthony Browne, told the Observer that banking hands were “quivering over the relocate button“, and that some big banks could start the process early next year.
Since then, Russia’s VTB Bank has announced it is to move its investment banking HQ away from the UK, and more will surely follow. Brexit could well turn into a disaster for UK banking jobs, but the banks themselves have far too much at stake to just lie down and give up.
A shocked shareholder
As a Lloyds shareholder, I won’t pretend I wasn’t a little stunned to see my investment lose so much of its value in the days after the referendum. But I’ve been at this game long enough to know that one of the worst things you can do when everyone is panicking is join in the hysteria. And so I hung on to my shares while many (including big City investment managers) were dumping.
As a result, I’m now around down 15% (including dividends) since I bought rather than sitting on a 33% bottom-picking loss if I’d followed the crowds — it’s still not my best ever performance, but for a “sky is falling” panic stock it’s far from a disaster.
In fact, if I had spare cash to invest right now I’d be seriously thinking of buying some more, because I really do see Lloyds shares, which are on forward P/E multiples of only around nine and have forecast dividend yields in excess of 5%, as cheap.
It is possible that the bank’s ambitious dividend policy might be reined in a bit with Brexit looking — whatever the outcome, there are going to be costs, and analysts are forecasting two years of earnings declines. But there’s room for that.
And the same analysts are putting out a strong buy consensus, and I can’t argue with them — Lloyds is still looking like a long-term buy to me too.