Why I Love Owning Shares in Lloyds Banking Group


LONDON -- Lloyds Banking Group was the best performing FTSE 100 share in 2012. The shares have already had a strong start to 2013, rising 8%. In comparison, the FTSE 100 is up 6.6%.

The bank and its management have received significant criticism in recent years. However, I am proud to back them and continue to hold my shares for the recovery.

I bought my shares in Lloyds in 2011. This trade was based on my conviction that the shares were cheap, provided no further fundraising would be required. Lloyds was then hit by a series of negative developments. First, the company had to set aside billions of pounds to compensate customers that had been missold Payment Protection Insurance (PPI). Then, its overworked and exhausted chief executive Antonio Horta-Osorio was forced to take sick leave in November 2011. This led many investors to speculate on whether he was up to the challenge. Just as things looked as though they could not get worse, the crisis in the eurozone was building to a crescendo.

Lloyds spent 2012 getting back on track. Although further PPI provisions were required, they were far below the costs that were incurred in 2011. Mr. Horta-Osorio returned to his desk and spent the rest of the year proving people wrong. I am delighted to back him.

The bank also reported significant reductions in loan and asset impairments. Now investors are beginning to speculate on how much Lloyds will make, rather than lose, in 2013.

Potential upside
Although Lloyds has had a good 2012 and 2013, significant further rises are still possible. Don't forget, the Lloyds share price spent much of 2010 over 60 pence. That is 15% ahead of today's price.

Some commentators think Lloyds could move even higher. Douglas MacNeill, investment director at broker Charles Stanley, had this to say: "If Lloyds can put its problems behind it, then it might just be able to get toward the kind of premium to book value that the best banks enjoy: around 20%. That would put a price of about 70 pence a share on the agenda."

Whatever happens from here, investors that had backed the bank to recover in 2012 made a handsome return. Correctly choosing recovery plays is one of the quickest ways to make big returns from shares. If you want to learn more on how the stock market could help accelerate your wealth, get the free Motley Fool report "10 Steps to Making a Million in the Market." The report is 100% free and will be delivered to your inbox immediately. Simply click here to start learning today.

The article Why I Love Owning Shares in Lloyds Banking Group originally appeared on Fool.com.

David owns shares in Lloyds Banking Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published