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Remember the past when you cash your Lloyds Bank dividend

pictue of Halifax
No longer a headache for Lloyds

It has taken years, but confidence seems to have returned fully to the bank sector.

Latest quarterly updates from the US banks underlined the point.

Huge dividend payments after they cruised past a US central bank stress test dominated the numbers.

But it’s not just the US.

A research note from broker Jefferies last week on Lloyds Banking Group PLC (LON:LLOY) was similarly upbeat.

Upping its forecasts, the broker said Lloyds may have as much as £1.7bn to distribute on top of a serious ramping up of dividend payments.

Adding the two gives the potential for shareholder returns of 9% in 2017 and more further out.

That makes Lloyds an "attractive yield play" and there is no arguing with that on Jefferies numbers.

But for all the money they pay out, do banks actually make a real profit?

A veteran bank analyst once told me not.

A simplification perhaps, but his point was banks are trapped in an unending boom-bust cycle.

In the economic good times, credit restraint goes out of the window, they over-lend furiously and pay huge dividends confident that the bad debts experiences of the past are just that.

Reality follows in the form of massive impairments, huge losses and major injections of new capital when austerity bites.

Sound familiar. It should to anyone who was involved in the market in 2008-09.

My contact was speaking well before that disaster, when all of the lessons from the past were as much ignored as forgotten.

True Lloyds is just getting back to where it was ten years ago and for economies to function it needs confident banks prepared to lend.

But if history suggests anything, it is be wary of bank shares when they have too much capital not too little.

We may not be at that point yet, but it getting a lot nearer.

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