Lloyds shares could take flight post-Covid-19 after CEO says lender can cover loan defaults

Lloyds shares are trading 4% higher on Tuesday and could see gains extended after the bank said that it is capable of absorbing an uptick in loan defaults caused by the Covid-19 crisis.

Lloyds Group CEO Antonio Horta-Osório told onlookers at the lender’s annual general meeting (AGM) last month that it is capable of supporting business owners effected by the pandemic, but admitted that it would a have a significant impact on the overall performance of the bank.

As it stands, Lloyds has provided around £5 billion to customers via the UK government’s coronavirus relief packages, as well as offering repayment holidays to millions of people effected by the viral outbreak.

Lloyds is trading at 32p per share as of 12:30 (GMT).

Covid-19 wipes out Lloyds profits

Lloyds unveiled a disappointing set of first quarter (Q1) results in April, with profits down 95% after the lender was forced to wear a £1.4 billion charge to cover a surge in bad loans as a result of the pandemic.

Since the Covid-19 crisis kicked off, Lloyds share price has found support at 30p levels, with the majority of the price action falling within 28p to 32p range.

‘The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world,’ Lloyds Group CEO António Horta-Osório said.

‘The economic outlook is clearly challenging with the longer term outcome dependent on the severity and length of the pandemic and the mitigating impact of Government and other measures in the UK and across the world.’

‘Throughout this period of uncertainty we will continue to work closely with Government, regulators and other authorities and use the strength of our balance sheet and business model to ensure that we play our part in supporting our customers and the UK economy,’ Horta-Osório added.

UK banks warn half of ‘bounce back’ loans could default

British lenders warned that around 50% of the £18.5 billion in ‘bounce back’ loans to small business owners to offset the economic impact of the Covid-19 crisis will never be repaid, according to a recent report by the Financial Times.

The ‘bounce back’ loans are backed by the UK government and provide small business owners with a lump sum of up to £50,000. But UK banks are concerned that many loan recipients will either be unable to pay back the loans due to a lack of economic activity post-lockdown or simply because their business goes bust.

‘A lot of [the loans] will be written off or converted into something else.’ a bank chairman told the Financial Times. ‘The question is what's going to happen to all of these loans?’

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.