Newspaper article The Evening Standard (London, England)

Citi Puts Lloyds Banking on Buy List despite the Risk

Newspaper article The Evening Standard (London, England)

Citi Puts Lloyds Banking on Buy List despite the Risk

Article excerpt


SHARES of Lloyds Banking Group continue to be overshadowed by the prospect of full nationalisation following its takeover of rival HBOS. But Citigroup reckons that is the last thing the Government wants, and clients should consider taking advantage of the cheapness of the share price.

It has resumed coverage of the lender with a high-risk buy rating and a 120p target. The shares responded with a jump of 12.9p to 80p, putting them among the best blue-chip performers.

Citi believes the danger of dilution has been exaggerated: "If the Government provided 100% of the required capital under our stress-test scenario, public ownership would increase from 43% to 57% and dilute the net asset value to 122p a share.

"Lloyds is currently trading at a 47% discount to this outcome, seemingly reflecting fears of full nationalisation, something we view as unnecessary and inconsistent with the stated aims of the Government." The broker concedes nationalisation remains a possibility, but remains adamant the risk is more than adequately discounted in the current valuation.

Banks generally were able to extend this week's rally. Barclays gained 7.5p to 97.5p and Royal Bank of Scotland added 1.1p to 16.8p. The big property developers also attracted support. Land Securities leapt 7p to 641p and British Land 111/2p to 4421/2p on news they are to sell shopping-centre stakes valued at more than [pounds sterling]750 million. Goldman Sachs suggested only yesterday that they would soon have to make disposals to reduce debts and cope with the recession.

But such a move would dilute earnings, and hit shareholders.

The rest of the London market reacted positively to news that President

Obama wants to boost America's economic stimulus package to almost $900 billion ([pounds sterling]630 billion). The FTSE 100 index rose 46 points to 4240.4.

Rio Tinto lost 29p to 1610p after conceding that it may have to turn to shareholders for extra funds to meet its goal of reducing debt by $10 billion by the year-end. Dealers say other rights issues by mining companies cannot be ruled out. BHP Billiton drifted down 8p to 1256p after Citigroup dropped the shares from its buy list. …

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