BofA-ML reiterates 'underperform' on Lloyds citing competition in UK mortgages
Analysts at Bank of America-Merrill Lynch reiterated their 'underperform' recommendation for shares of Lloyds on Wednesday, pointing to a £2.0bn revenue headwind for the lender as it tries to manage the trade-off between growing its mortgage volumes and sustaining it net interest margin in the face of increased competition in the space and as expectations for interest rate increases continue to get pushed back.
Indeed, at £9.6bn of gross mortgage lending in the first quarter of 2019, Nationwide's 14.5% share of the market was "well ahead" of Lloyds's at 13.1%, despite the former being much smaller.
"This is no flash in the pan, with Nationwide's share of new business above its stock for three consecutive quarters," the analysts said.
"Future new business volumes will likely reflect pricing but Nationwide intends to stay competitive and consequently expects the current pace of margin decline to continue."
And other major UK banks were also continuing to target market share gains in UK mortgages, so much so that Tesco Bank had opted to pull out.
"Lloyds is likely to continue trying to mitigate the margin pressure but its weak 1Q19 lending highlights mortgage borrowers' price sensitivity.
"We estimate that this results in a £2bn income headwind 2018-21E that is hard to fully offset with growth in other parts of the balance sheet."
BofA-ML had a 55.0p target price for shares of Lloyds.