Shares in Lloyds Banking Group (LON:LLOY) have fallen deep into the red in today’s session as Bank of America Merrill Lynch said that it expects the company to see a £2-billion mortgage-related revenue headwind. The comments came in the wake of Nationwide Building Society’s results.
As of 14:15 BST, Lloyds’ share price had given up 1.64 percent to 59.53p. The stock is underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.09 percent lower at 7,322.58 points. Lloyds’ shares have given up more than 11 percent of their value over the past year, as compared with a near seven-percent fall in the Footsie.
BofA weighs in on Lloyds
Proactive Investors quoted BofA Merrill Lynch as commenting that at £9.6 billion of gross mortgage lending in the first quarter of 2019, Nationwide’s 14.5-percent share of the market was ‘well ahead’ of Lloyds’ at 13.1 percent, despite the former being much smaller.
“Lloyds is likely to continue trying to mitigate the margin pressure but its weak 1Q19 lending highlights mortgage borrowers’ price sensitivity,” the broker pointed out, adding that it estimated that this resulted in a £2-billion “income headwind 2018-21E that is hard to fully offset with growth in other parts of the balance sheet”.
BofA Merrill Lynch’s comments come after Tesco’s (LON:TSCO) banking unit announced this week that that it had ceased new mortgage lending and was actively exploring options to sell its existing mortgage portfolio. The challenger bank pointed to ‘challenging market conditions’ in recent years, which, it said, “have limited profitable growth opportunities”.
Bank seen as ‘underperform’
The comments came as BofA Merrill Lynch reiterated its ‘underperform’ rating on the FTSE 100 lender, with a price target of 55p on the shares. According to MarketBeat, the company currently has a consensus ‘buy’ rating, while the average target for the Lloyds’ share price stands at 72.93p.