I was handed this note because, to quote my colleague, Proactive had been “bestowing too much love” on Lloyds Banking Group PLC (LON:LLOY) following its prelims Wednesday.
This, he said, would act as an “antidote”. More like a bucket of cold water, or smelling salts for those giddy with the prospect of a Lloyds special dividend.
So, what am I talking about? Well, it’s a broker ‘sell’ note. But, borrowing from the old Marks & Spencer strapline, this isn’t just any old ‘sell’ note.
No, it comes from Goldman Sachs, the Wall Street investment bank that has the capacity to move markets - or in this case share prices.
Its key concern is the mortgage book of business. Distilled down into everyday language, Goldman is worried the mortgage book isn’t shrinking as quickly as predicted.
This might sound counter-intuitive, but there is method to the apparent madness here.
Mortgages are competitive and commoditisd, so pricing is key. Success, Goldman believes, lies in charging more for its products (even if there is a decline in the number of home loans agreed), rather than selling more for less, if you catch my drift.
“From our perspective, the key unknown from these results is whether they represent the first sign of a U-turn in Lloyds’ mortgage strategy: previously the group had prioritised margin maintenance and the size of its open mortgage book eroded slowly as a consequence,” Goldman said.
The shares, up 1.5% at 70.1p, are worth just 60p each, it reckons.
Goldman is one of just three ‘sellers’ of stock, according to the Broker Forecasts site, which polled 18 analysts.
Counter-balancing Goldman’s negativity (and more reflective of City opinion), JP Morgan Cazenove, another big hitter, repeated its ‘overweight’ call on the stock and raised its share price target to 80p (from 75p). It reckons Lloyds is the “best placed” of the UK’s major High Street banks.