Is the banking crisis giving me a once-in-a-lifetime chance to buy Lloyds shares?

As I write this, Lloyds (LSE: LLOY) shares are down again. It is not alone – Barclays and NatWest also crashes.

At FTSE 100 banks are down about 3% so far. Swiss bank Credit Switzerland is at the heart of the storm, down more than 10% and still in the south as worries of a banking crisis return. This makes now either a brilliant time to buy Lloyds or a terrible one, depending on two factors.

The first is your attitude to risk. Only you know. The second is the extent of the banking crisis. No one knows.

Buy a chance to be brave

After the 2007/08 financial crisis, regulators worked tirelessly to ensure it never happened again. Banks have been forced to increase their capital strength, avoid risky shadow banking operations, diversify funding sources, and report over-the-counter derivatives trades. Senior management is more accountable, while current remuneration rules prevent excessive risk-taking and misconduct. Or so we tell.

Now we will find that all that hard work will pay off. Lloyds appears to be safer than most, as it now focuses on the UK, protecting it from international contagion.

Barclays has been hit harder by the collapse of Silicon Valley Bank, thanks to its US arm and Barclays Capital division. Lloyds shares have fallen ‘just’ 7.76% over the past week, while Barclays has fallen 12.87%. Measured over a year, Lloyds was down just 2.5%, while Barclays was down 18.71%.

As the financial crisis showed us, banking contagion does not happen overnight. It takes time for risks to emerge. On Wednesday, confused investors dumped banking stocks as its biggest backer Credit Suisse refused to help. The next day, after the Swiss National Bank stepped in with a $54bn loan, they couldn’t get enough of the sector.

Lloyds has capital strength

Investors are scared now, but Lloyds looks well capitalised, with a strong CET1 solvency ratio, which compares the bank’s capital to assets. The latest yield provides 14.1% after capital distribution and pension contributions. That is higher than the target of 12.5%.

The Lloyds board considers its capital position strong enough to announce a £2bn share buyback. It also generates enough money to sustain what it calls management “a progressive and sustainable regular dividend policy”.

Last year, Credit Suisse made a record loss of £7.9bn. In contrast, Lloyds made a pre-tax profit of £6.9bn. Last year, Credit Suisse customers withdrew $123bn, mostly in Q4. No runs at Lloyds.

There is still some risk in buying Lloyds shares. I don’t know how far the banking contagion will extend, and neither does anyone else. They may have hidden nasties buried in the balance sheet.

I bought Lloyds in October, and have had enough exposure to my fortune. If not, I’d be diving at today’s price of just 6.5 times earnings. This is a good income stock with a forecast yield of 5.7%, covered 2.7 times earnings. As always, dividends are not guaranteed. If public sentiment is against the banks, there may be pressure to default.

The current 46p share price looks like a buying opportunity for long-term investors like myself. I will drip-feed money in, though, because the share price of Lloyds can fall further if the crisis spreads, even if the bank itself is not at fault.