Lloyds and me........a marriage for life!

Well here we are again, in the infancy of yet another Bull Market. I love these times, don't you!

I have spent countless hours searching for the one, and i think I've found her......her name is Lloyds Banking Group... LLO or LYG, to those in the know.

She's conservative, somewhat prudent, doesn't have a bad history, and comes from good heritage.........that's the one I thought when I got to know her a little better.

You see, some may believe the acquisition of HBOS as a reckless affair, but to me I believe it was a strategic buyout. Lloyds had been seeking a way to increase market exposure, and HBOS was the perfect way to do it. The share has taken a beating, but Lloyds has very good management. Let's face it, no other bank which took UK Government backing has managed to pull off one of the biggest rights issues, and begin paying off the Treasury. Lloyds is a Bank with a conservative approach to lending, and using this approach it will not take them long to get the government out of their hair. The quicker they do so, the more likely they'll be able to negotiate the possibility of holding onto the Scottish branches.

The up side of the buyout is that Lloyds got the biggest Mortgage lender, HBOS, out of their way. They've pretty much managed to nearly double their revenue, and once people realise they should keep paying their mortgage, because that's the risk they took when they bought the house, the impairments will go down. Once the impairments are under control, this bank will be in a very good position. It is not Lloyds that created this problem, but the people failing to pay their mortgages, and the lending criteria, or lack of it, of HBOS. Lloyds will turn this around, and they will do it quickly.
We cannot blame the Management of Lloyds for the impairments, but rather congratulate them when they do prove that this was in fact a necessary acquisition. If Lloyds had not purchased it, the government would have been left with 100% of the mortgage debt, and will have sold the securities to Lloyds competition, eventually reducing Lloyds market share of deposits, and lending.

I'm in this for the long term. I truly believe Lloyds will see share prices equivalent to that of 2007, as even though there has been dilution, the revenue has increased proportionately. So, my view is in the short term, we will see 2x, maybe 3x, and the long term (10 years +), this will be at 10x current price as of March 2010.

What I would love to see, is Lloyds managing to hold onto the LloydsTSB branches of Scotland. This bank has long heritage in Scotland, and I believe it unfair to expect it to sell that portion of the company.

Mr. Daniels is a very clever man indeed. We're lucky to have him.


Disclosure: I am Long LYG