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Lloyds Banking Group PLC ADR LYG

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Morningstar’s Analysis

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Lloyds Passes 2021 Stress Test

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

Narrow-moat Lloyds passed the Bank of England’s stress test. At its lowest point, Lloyds’ common equity Tier 1 ratio dropped to 7.8% from a starting point of 15% at the end of 2020, on a fully loaded basis. This was just above the minimum of 7.7% regulators believe Lloyds should hold in capital reserves. The stress test aims for a plausible and severe macroeconomic scenario, which is significantly more punitive than what the U.K. economy experienced during 2020. As such, we don’t view the tight margin to Lloyds’ minimum requirement at the low point as worrisome. The bank appears adequately capitalized, will retain functional without capital infusions in such a severe macroeconomic scenario, and does not rely on transitional accounting arrangements to smooth capital drawdowns throughout the stress. We maintain our GBX 68 per share fair value estimate.

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Company Profile

Business Description

Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking, and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards, and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management, and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset-management services.

25 Gresham Street
London, EC2V 7HN, United Kingdom
T +44 2073562104
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings Jun 30, 2008
Fiscal Year End Dec 31, 2021
Stock Type
Employees 61,576