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He Lloyds Banking Group (LSE:LLOY) share price has enjoyed strong gains in 2024. At 53 pence per share, it is up 10.1% since 1 January.
But he FTSE 100 The bank has fallen sharply since late October. This negative momentum bodes poorly for existing investors heading into 2025.
So what does the New Year have in store for Black Horse Bank? And should I buy Lloyds shares for my portfolio?
The new PPI scandal?
Let's start by exploring its recent share price decline.
You probably remember the mis-selling scandal that rocked the banking industry during the 2010s. Companies were found guilty of mis-selling payment protection insurance (PPI) on an industrial scale. Lloyds alone was forced to pay a staggering £21.9bn.
Today, another story of bad sales scares investors, this time regarding the sale of auto financing. It is early days, but investors fear another costly scandal is brewing, in which Lloyds is once again said to be a major player.
Footsie bank has set aside £450m to cover the potential costs of a Financial Conduct Authority (FCA) investigation. But it has put it under review after a recent court ruling: in short, this commission considered illegal by lenders to car dealers without customers knowing.
RBC Bank Analysts believe Lloyds could have to pay up to £3.9bn in fines. This would be small compared to the PPI scandal. However, the problem will not go away anytime soon and estimates could continue to rise. This could keep Lloyds' share price under significant pressure.
Problems elsewhere
The car finance saga may be the biggest influence on Lloyds shares next year. But it's not the only concern I have.
My other concerns include:
- A combination of weak loan growth and rising credit deteriorations as the UK economy struggles.
- Falling net interest margins (NIM) as the Bank of England cuts interest rates.
- The threat that challenger banks and building societies pose to customer demand and margins.
However, there are spots of light in the midst of darkness. A steady recovery in the housing market is a good sign for Lloyds. The bank's digital transformation initiatives should also continue to bear fruit.
But overall, I think Lloyds and its share price could face tough times in 2025.
This is what I'm doing
That does not mean that City analysts currently share my pessimistic view. The 18 analysts who rate the bank have set a 12-month price target of 64.94 pence per bank share.
That represents a 22% premium to current levels.
However, on the other hand, those 18 analysts are not mulling over Lloyds. Ten have given the company a Hold rating. This is considered a Sale. Only seven believe it is a Purchase.
This coincides with the general market's lukewarm view of the bank, as reflected by its very low valuation. A forward price-to-earnings (P/E) ratio of 8.1 times is well below the FTSE 100 average of 14.3 times.
I believe the market and the City may take an increasingly bearish view of Lloyds, which in turn could drive down its share price considerably.
All things considered, I'd rather buy other cheap UK shares at the moment.
