Although Lloyds may have effectively cast aside the shackles of its government overlords, the banking sector is still more susceptible than others to Brexit-related developments and market movements.
Khalaf said: “Unlike the FTSE 100 as a whole, Lloyds is very much a bellwether of the UK economy because of all the loans it makes to businesses and consumers in this country, so its fortunes are very much shackled to domestic conditions.”
When asked what challenges lie ahead for Lloyds, Howlett agreed its recovery was dependent on “what happens with the UK economy post-Brexit,” which is “still the question mark.”
“All banks will be exposed to underlying conditions in the economy. And at some point all economies go into recession,” he said.
While managers like Woodford may be seeing newfound opportunities now that Lloyds is back in private hands, the era of government owned banks is far from over, with RBS still 72% owned by the Treasury.
“RBS still casts a long shadow over the banking bailout too, seeing as the taxpayer funding package was twice as big, and the bank’s shares still need to double in price before the government breaks even,” said Khalaf.
“Progress has been slower at RBS because it had more problems to start with, and it’s difficult to see how the government can realistically sell off its 72% stake in the bank without taking a financial hit.”
Howlett agrees that RBS has a much larger overhang to contend with, which is reflected in current valuations.
“Perhaps RBS could be where Lloyds is five years down the line,” he mused.
