If I’d invested £1,000 in Lloyds shares 1 year ago, here’s what I’d have now!

Lloyds (LSE:LLOY) shares are currently 48. That’s my opinion. The stock was shaken when Silicon Valley Bank (SVB) collapsed last month, but fell less than its peers. The downward pressure, which I don’t believe is warranted, has definitely made the stock more attractive, in my eyes.

So let’s dive deeper and take a closer look at Lloyds.

A positive year

Over the past 12 months, Lloyds shares have risen despite the correction in March. At FTSE 100 bank up 6.5%.

So if I invested £1,000 in Lloyds shares a year ago, today I have £1,065, plus dividends – around £45. That makes the total return around 11%. It’s pretty good.

A safe investment

Lloyds has shown some resilience over the past month. While Barclays, Standard Chartered and HSBC lost up to 20% before recovering slightly, Lloyds fell by just 10%.

The stock fell on fears that banks were sitting on billions in unrealized bond losses after SVB had to sell bonds at a loss after depositors began to withdraw.

The problem is that SVB is unique in that its bond holdings are highly concentrated and its deposit base is not diversified – it focuses on technology which has been incredibly volatile in recent years.

Lloyds is a very different institution and is one of the safest large banks in Europe and North America. At the end of Q4, Lloyds had a liquidity coverage ratio (LCR) of 144%. This is ahead of major European and US banks – only four banks have an LCR of more than 150%.

However, it is true that Lloyds is very focused on the UK mortgage market – more than half of its profits. And this means it is potentially vulnerable to negative fluctuations in the housing market.

Tailwinds

Lloyds’ exposure to the housing market is often noted as a weakness, but in today’s high-yield environment, the composition of the bank’s funding and lack of investment means it is experiencing one major headwind.

In 2022, Lloyds said it expects net income to rise 14% to £18bn due to rising interest rates. Net interest margin – the difference between lending and savings rates – rose 40 basis points to 2.94% over the year.

Banks like Lloyds also earn more from central bank deposits. By the end of 2022, analysts suggest that every 25 basis point increase could result in an additional £200 million of eligible assets of £145.9bn and £78.3bn held as central bank reserves by June 2022.

The problem now is that interest rates are a bit high. When Bank of England rates go above their optimal level – 2-3% – we see more loans go bad and impairment charges rise. But the forecast is positive, with rates due to match the optimal level in the medium term.

This is one of the main reasons I bought more Lloyds shares after the share price fell in March. I think the medium term forecast is very positive for this interest rate sensitive bank.