Investing 10-03-2023 11:01 6 Views

Lloyds share price: Do we have another global bank crisis?

Lloyds (LON: LLOY) share price nosedived on Friday as global banking groups continued selling off. The stock retreated to a low of 49p, the lowest level since January 20th of this year. It has dropped by over 7.7% from its highest point this year. Other UK bank stocks like HSBC, Barclays, and NatWest also plunged.

Another bank crisis in sight?

Lloyds stock price joined its American peers as concerns about the banking sector resumed. This crisis was triggered by this week’s collapse of Silvergate Capital, which I wrote about here. It was then followed by the near collapse of SVB, the parent company of Silicon Valley Bank.

In the aftermath, it was a sea of red among bank stocks, with even the bluest of the blue-chips like JP Morgan and Goldman Sachs retreating. The closely watched SPDR Bank ETF has tumbled. The fear is that we could be staring at another global banking crisis as we saw in 2008. 

However, in reality, we are not in such a crisis. For one, Silvergate and SVB are relatively small banking organizations that operate in a small niche. They are not seen as systematically important banks like Lehman Brothers was.

Silvergate was a small regional bank that diversified fully into cryptocurrencies. At the time, it became the favourite bank for crypto-related companies like FTX and Three Arrows Capital. Therefore, it became a victim of the collapse of cryptocurrency prices. 

SVG, on the other hand, was the main bank used by technology companies and venture capital firms. The company is used by most companies in this niche and yet systematically important industry. As such, it was also hit by the collapse of tech IPOs and venture capital.

Is Lloyds share price at risks?

Lloyds share price chart

Therefore, I believe that the collapse of Lloyds share price is not warranted considering that the bank is doing well. The only major risk I see in it is its pensions business, which had a meltdown during the mini-budget crisis. 

Lloyds Bank is taking advantage of higher interest rates in the UK to increase its net income margin. It has also seen lower delinquencies in the past few months. Most importantly, it has a strong balance sheet, with the most recent earnings showing that its CET 1 ratio is about 16. 

Meanwhile, Lloyds Bank has no exposure to the United States, cryptocurrencies, and the technology industry. Instead, the company focuses mostly on individual and commercial lending businesses.

Therefore, I believe that this Lloyds share price crash is unwarranted and is primarily driven by fear among investors. As such, it might remain under pressure for a while and then stage a strong comeback later this year.

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