The Motley Fool Previous Page

Should I Buy Lloyds Banking for My ISA?

Maynard Paton
March 13, 2013

LONDON -- You only have a few weeks to use your tax-efficient ISA allowance before the April 5 deadline. ISAs are issued on a use 'em or lose 'em basis, so don't fluff it. You can save up to 11,280 pounds in the current tax year, and put the lot of it into stocks and shares. To find out more, click here. But which stocks should you buy? How about Lloyds Banking Group (LSE: LLOY) (NYSE: LYG)?

Failures or safe?
Loathe them or loathe them, the major U.K. high street banks are too big to fail. The taxpayer knows this, to their cost. Politicians know it, and feel helpless. The Bank of England knows it, and sets monetary policy accordingly. Does this make Lloyds a failsafe investment for your ISA?

Up, up, up
The big banks have enjoyed a share-price resurgence over the past twelve months.

Royal Bank of Scotland is up 18%, Barclays is up 32%, but Lloyds has trumped them both with a 48% rise. That compares to a return of around 7% from the FTSE 100.

The banks have been the major beneficiaries of the central-banker policy of flushing markets with loose money and liquidity. Lloyds did particularly well out of the Bank of England's Funding for Lending Scheme, picking up 22 billion pounds to fund cheap loans, compared to just 9 billion pounds for Barclays.

Lloyds has also been working hard to mend its broken business and simplify its sprawling operations, off-loading everything from private-equity assets to Irish property loans, and selling 632 branches to the Co-operative Bank. Lloyds has also pulled out of ten territories, and is now focused mostly on the U.K.

Cutting its losses
Lloyds' full-year results for 2012 showed a dramatic slowdown in the rate at which it is losing money.

Losses fell to 570 million pounds, down from a massive 3.5 billion pounds in 2011. The 2012 figure included 1.9 billion pounds set aside for mis-selling payment protection insurance (PPI) and interest rate swaps. Excluding mis-selling claims, the bank's underlying group profit actually rose to 2.6 billion pounds, up from 638 million pounds in 2011.

Compare that to the 5.2 billion pounds pre-tax loss posted by RBS, and Lloyds starts to look positively healthy.

Lloyds also plumped up its financial cushion, or core tier 1 ratio, by another 12%, and cut group costs by 5% to 10 billion pounds, two years ahead of schedule. Management now plans another 9.8 billion pounds of cost cutting in 2013.

And the bank continues to raise money by off-load