Should I Buy Lloyds Banking?

It's time to go shopping for shares again, but where to start? Household goodie Unilever? High street favorite Marks & Spencer? Or cut-price Tesco?

There are plenty of great stocks to choose from, and I'm enjoying doing some window shopping. So here's the question I'm asking right now: Should I buy Lloyds Banking (LSE: LLOY.L  ) (NYSE: LYG  ) ?

The killing
Every time the Lloyds share price rises, something in me dies. I finally gave up on the stock at the end of last year, selling my entire stake at a price of just 26 pence, and taking a big loss on the chin.

Almost immediately, the share price bounced back. By mid-March, it was up 43% to 37 pence. After a summer dip, the part-state-owned bank trades at 42 pence, and it's killing me.

Flirting with the enemy
If banks were any other company, nobody would touch them. The public hates them. Their customers hate them. Regulators hate them. When they look in the mirror, they even hate themselves.

Worse, their accounts are impenetrable, their working practices dubious (if not downright dishonest), their bonuses vile, and they have bankrupted the U.K.

They are, quite understandably, public enemy No. 1.

Only the banks could survive all that, because we need them. Despite their current woes, they will be back. All shareholders have to do is buy at the right price, and be patient. Like I wasn't.

So, should I buy Lloyds now?

The big sell-off
There has been some good news for Lloyds lately. It seems likely to be the biggest beneficiary of the Bank of England's funding for lending (FLS) scheme, with at least 22 billion pounds of state support to help it offer lower rates to customers. That compares to 11 billion pounds for Royal Bank of Scotland and 9 billion pounds for Barclays.

The Lloyds share price was further boosted after the FSA said the banks didn't need to hold extra capital against loans made under FLS, which means they qualify as risk-free.

Lloyds has also been simplifying its sprawling operations In August, it sold private-equity assets to Coller for 1 billion pounds and is close to selling off another 1.6 billion pounds' worth of Irish real-estate loans.

Lloyds also sold 632 branches to the Co-operative Bank, in a forced (and loss-making) sale, and is pulling out of 10 countries that it no longer considers strategic priorities.

Bye-bye PPI
Half-yearly results, published in July, were a mixed bag. Underlying profits rose 715 million pounds to 1.06 billion pounds, but the group reported a statutory loss before tax of 439 million pounds, after having to set aside 700 million pounds in compensation for mis-sold payment protection insurance (PPI) in the second quarter alone (on top of 375 million pounds in the first quarter).

The total estimated cost of PPI redress is a whopping 4.275 billion pounds to date. That's another fine mess that banks have got themselves into.

The big banks face new competition from rivals such as the strengthened Co-op and new entrants such as M&S. They remain targets for ongoing campaigns by angry consumers and are vulnerable to a eurozone break-up.

Shareholders also have the uncertainty of how and when the U.K. government will offload its 43% stake in Lloyds.

Pain, no gain
As I discovered to my cost, you can't write off the banks. Given time, they will recover. After all, money is their business. One drawback is that Lloyds won't pay you for waiting. The FSA recently stamped down on its plans to resume a small dividend from 2014, saying it should set aside the money against a possible eurozone break-up.

I don't like Lloyds, you don't like Lloyds. Most of all, I hate myself, for selling at the wrong time. Would I buy now? Not at 42 pence per share (too painful). One day I might regret that as well.

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Harvey Jones owns shares in Royal Bank of Scotland. The Motley Fool has recommended shares in Unilever and owns shares in Tesco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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