Lloyds Bank shareholders should be ‘delighted’ with dividend potential after latest deal Lloyds Bank shareholders should be ‘delighted’ with dividend potential after latest deal

Investors who own Lloyds Banking Group shares should be happy at the impending purchase of the MBNA credit card business, according to Rob James, banks analyst at Old Mutual Global Investors.

 Lloyds Bank shareholders should be ‘delighted’ with dividend potential after latest deal

Rob James is keen on Lloyds Bank shares

Lloyds Banking Group announced yesterday its intention to pay around £1.9 billion for the MBNA credit business presently owned by Bank of America, Merill Lynch.
James commented that Lloyds management ‘have made no secret’ of its desire to grow its consumer credit business in the UK, where it significantly lags rival Barclays. The analyst commented that with this deal Lloyds will take its market share above 20 per cent.
Although the market has generally greeted the news positively, some have expressed concern that Lloyds is increasing its exposure to the UK consumer at a time of rising inflation, and greater economic uncertainty. Of the UK-listed banks, Lloyds is unique in having all of its focus on the UK. That focus is particularly centred on the UK mortgage market, which may be susceptible to a slowdown in the economy. The UK mortgage market, unlike consumer credit, has displayed only sluggish growth in recent years, so with this purchase, the company is deploying more capital in a growing part of its core market.
James remarked that he would be more concerned about this if, ‘Lloyds were paying a full price, a high price for MBNA, but they are actually paying a very low price. Lloyds have said they expect conditions to worsen, but that is already reflected in the price they are paying. Credit cards are by their nature a cyclical business, that is why they are so expensive, but Lloyds are getting MBNA for a very good price.’
He added that while Lloyds may not be able to pay a special dividend to shareholders this year, ‘the increased returns they can achieve from MBNA, which is a very high return business are high over the long term. It could mean that Lloyds returns improve by 10 per cent, and that is positive for the dividend.’
James commented that the cost savings and customer data which can be attained by Lloyds as a consequence of this deal are a positive.
He principally works on the £2.1 billion Old Mutual UK Alpha fund, which has Lloyds Banking Group as one of its ten largest investments.
James takes the view that shareholders in Lloyds Banking Group should be ‘delighted’ with the deal that has just been announced.

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