Lloyds share price underperforms as Britain decides on EU membership

Shares in Lloyds Banking Group (LON:LLOY) have slipped into the red in London this morning, underperforming the broader market and blue-chip peers RBS (LON:RBS), Barclays (LON:BARC) and HSBC (LON:HSBA), with the UK voting on its membership in the European Union. A potential vote to leave is expected to pressure the group’s fortunes and derail the government’s planned sale of shares in the bailed-out lender to retail investors.

As of 09:52 BST, Lloyds’ share price had slipped 0.23 percent to stand at 70.38p, as compared with a 0.83-percent rise in the benchmark FTSE 100 index. The lender’s shares have lost more than seven percent over the past year, but have recovered a little over one percent in the year-to-date. The stock, however, is still below the government’s break-even price of 73.6p, preventing the Treasury from disposing of the remainder of its stake in the bank.

Shares in the bailed-out lender have been under pressure amid uncertainty of the outcome of today’s referendum, with the bank expected to be among the UK lenders hit the hardest by a potential Brexit vote on account of its exposure to the UK economy. Earlier this week, analysts at Jefferies commented that while the group was “relatively defensive in a Brexit scenario,” a recession was set to impact the group’s 2017 and 2018 earnings.
A potential ‘Leave’ vote is also expected to derail Chancellor of the Exchequer George Osborne’s planned retail share sale. The government, which still holds about nine percent in the blue-chip group, however, is thought to be aiming to sell £2 billion worth of shares in the bailed-out lender to retail investors as early as August, should the UK vote to remain in the EU.
Analysts at Exane BNP Paribas meanwhile remain bearish on the stock, reiterating their ‘underperform’ rating with a price target of 70p this week. Interactive Investor quoted the broker as commenting that while Lloyds’ underlying capital generation remained stronger than for many peers, there were worries that future dividend distribution was being threatened by ongoing conduct issues, changing regulation and increasing margin pressure as competition in UK mortgages rises.
As of 10:39 BST, Thursday, 23 June, Lloyds Banking Group share price is 71.05p.