The UK government has been steadily reducing its holding in Lloyds Banking Group PLC (LON:LLOY), but should you be doing the opposite?
It's often not a bad starting point to assume that everything the government does is wrong, so here are five reasons why you might want to buy the lender.
Government's influence is now minimal
With the tax-payer's stake now below 5%, concerns over the government's influence is receding.
It's only fair that the government keeps out of management's hair, as it was the government – Gordon Brown's one – that bounced Lloyds into the disastrous takeover of HBOS Group – the owner of the Bank of Scotland and Halifax brands.
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The shares have risen by a quarter over the last six months (much to the chagrin of the tax-payer), suggesting that the market is now happy to buy into the recovery story.
Did someone mention Halifax?
Lloyds provides one in four mortgages to first time buyers in the UK. That's a dominant market share, though admittedly it is down from 32% in 2008.
Investment analysts love to go on about recurring revenues; mortgage payments are the last word in recurring revenues.
PPI pain receding
Lloyds was the first of the big lenders to make a provision for mis-selling of payment protection insurance (PPI) schemes.
At the time, many people were not even aware that there had been sharp practices across the industry relating to the sale of PPI.
Everyone knows about it now – especially those who own a mobile phone and who probably get pestered several times of month to check whether they have been rooked by a PPI salesman.
The amount Lloyds and the other banks have set aside to cover PPI claims is staggering (about £20bn), but most of the pain has surely now been suffered.
Surely?
(Yes, it has – and don't call me Shirley).
In any case, the City watchdog, the Financial Conduct Authority, has set a deadline of spring 2018 for when PPI claims must be submitted.
Statutory, or reported, profit before tax more than doubled to £4,238 million in 2016 from £1,644 million in 2015, Lloyds announced this morning.
The main reason for that is the level of PPI provisions reduced significantly, so, touch wood, cross fingers and carefully fish that four-leafed clover out of the supermarket salad mix – the days of PPI pain are almost over.
Shirley?
A local bank for local people
Of the Big Five high street lenders listed on the London Stock Exchange (the others being Barclays, HSBC, Royal Bank of Scotland, Banco Santander), Lloyds is the one most focused on the UK.
This is a comfort to many in the post-Brexit environment.
Furthermore, it does not have much – if any – involvement in what we sniffy journalists like to call “casino banking” - the trading of equities, bonds, derivatives, Top Trumps cards, the contracts of Premiership footballers and so on.
The focus on lending to the man in the street – or the woman in the semi-detached - makes Lloyds (in theory) a less volatile play than the other listed heavyweight lenders.
Some people like volatility … but they'll probably change their minds next week.
Once more a share for widows and orphans
Once upon a time, shares in Lloyds were among the mainstays of most UK income-focused funds, because of the handsome dividend.
As mentioned above, the bank is largely immune to wild swings in profitability caused by “casino banking” and, notwithstanding the banking sector's ability to come up with new things to get fined for – mis-selling, currency laundering, truly dreadful TV adverts involving ordinary staff members – Lloyds should be the archetypal “steady Eddy” once it has put all its misdemeanours behind it.
A sign of things to come was the announcement of a special dividend in this morning's results.
It recommended an increase in the ordinary dividend to 2.55p from 2.25p the year before and recommended a special dividend of 0.5p per share.
With the shares trading at 69.22p, the shares are offering an inflation-beating yield of 3.68%.
Factor in the special divi, and the yield rises to 3.75%.
Of course, the special divi is a one-off (though there may be further one-offs in the future, if that is not a contradiction in terms), but with the standard divi rising 13% year-on-year, the yield should remain decent.
As our American cousins like to say: you do the arithmetic.