Are Lloyds shares cheap buys at under 48p?

Lloyds Shares (LSE:LLOY) started the year on a positive note, rising more than 14% in mid-February. However, dark horse banks have begun to give up many of these benefits. Why?

The main reason behind the stock price is the unrest that started in the US with the collapse of Silicon Valley Bank. Shortly after, attention quickly turned to Switzerland Credit Switzerland also reached a crisis point. Now the focus on Germany is intensive concerns about Deutsche Bank‘s participate in the credit-default swaps market.

So, it will FTSE 100 Constituent Lloyds be next if the fear of contagion spreads to the UK? Or sell short Lloyds shares, making today a good buying opportunity? Here I am.

a solid foundation

Despite the gloomy background, I think the latest results of Lloyds reveal many reasons to be confident in the banking group’s prospects. The pro forma CET1 ratio, which measures a bank’s capital against risk-weighted assets, is a healthy 14.1%.

Although lower than the 2021 figure of 16.3%, the ratio is still above the bank’s target of 12.5%. In my view, it is strong enough to ensure Lloyds’ ability to withstand financial distress.

What’s more, the group’s net income rose 14% in FY22 to £18bn. Basic profit before depreciation also increased by 46%. In addition, the net interest margin continued to expand, helped by the tightening of monetary policy.

I am also encouraged by CEO Charlie Nunn who focuses on attracting affluent customers – meaning anyone who earns more than £75,000 or the same amount to invest. Increasing the number of customers with this kind of financial profile has the potential to add significant shareholder value.

With ambitions for an expanded offering of tiered savings, flexible loan options, and guaranteed benefits, I am excited to see if the group can achieve its goals in the coming years.

Macro risk

In my view, the biggest risk facing Lloyds’ share price is the broad macro risk rather than company-specific concerns. After all, the stock market is famous for its emotional investment cycles and there is a chance that Lloyds could be caught up in a massive sell-off that affects the entire banking sector.

Although the governor of the Bank of England, Andrew Bailey sought to calm nerves by saying the current situation “very different” for the 2007-08 financial crisis, he admitted that the regulator was in the period “Tense and very alert”. This shows that we are not out of the woods yet.

I believe Lloyds is a better bank than the various victims of the crisis so far. After all, the group’s liquidity coverage and asset portfolio look healthy. However, the possibility of market panic is more real, especially if there are more big lenders.

Cheap stocks to buy?

I already own Lloyds shares. My average trading price is no different than the current stock. Given the 5% dividend yield and the above encouraging financial results, I will hold my position.

However, the growing macro risk makes me reluctant to buy more at this stage. I don’t think the stock price is low enough today to justify increasing my position. However, I will sit back and see how this rapidly developing situation plays out.