THE STOCK market is treating banks as if they are incubating a particularly nasty disease: recessionitis, possibly. But having slashed the banking sector's price-earnings ratio to 60 per cent of the market average, yesterday investors breathed a huge sigh of relief at what was only a so-so trading statement from Lloyds TSB.
It is frightening to think what bank watchers might have been expecting when the best that Peter Ellwood, Lloyds' chief executive, could come up with was that "many of the positive trends seen in our first-half performance have continued into the third quarter". Total revenue in the first half rose 12 per cent, and earnings per share on a business-as-usual basis went up by 9 per cent.
Investors were comforted by his assertion that asset quality remains good and he expects "a further satisfactory performance for the year, in line with market expectations".
Those expectations are for operating profits 10 per cent higher at pounds 4.4bn, securing the current 4.7 per cent yield.
That confirms Lloyds shares as a firm hold, but the outlook for 2002 is distinctly cloudy. As Lloyds is already the most efficient bank in the country, its scope for further efficiency gains must be becoming more problematical, and like its rivals it will have to confront the prospect of bad debts - corporate and personal - as the economy tries to fight off recession. …