Three reasons to buy Lloyds’ shares at a bargain price right now

Lloyd’s (LSE: LLOY) shares have fallen around 10% since the announcement on March 10 of the collapse of Silicon Valley Bank. They remain depressed in other news that they are struggling Credit Switzerland will not receive new funding from major shareholders.

The drop in Lloyds’ share price coincided with similar declines in other banks’ share prices. However, there are three reasons why Lloyds shares should be bought today at a bargain price.

Continued strong performance

Firstly, Lloyds’ Q4 results show that it continues to perform strongly. Pre-tax profit was £1.8bn, up 80% year-on-year. Revenue over the same period rose by more than 20% to £5bn. This was ahead of consensus analyst expectations of £4.7bn.

Also positive is that the bank’s net interest margin increased year-on-year to 3.22% in Q4. This was again ahead of consensus analyst expectations of 3.16%.

For the full year, underlying profit before breakdown was £9.0bn up 46% in 2021.

Second, Lloyds decided to offset the impact of this year’s significant deterioration in the operating environment.

This is done by paying disruption costs of £1.51bn for 2022, compared to NatWestit is £337m. Barclays‘ 2022 disruption costs of £1.22bn followed separate litigation costs of £1.597bn from bond issuance in the US.

Overall cost discipline also remains good at Lloyds. Operating costs are £8.8bn in 2022, an increase of just 6% over 2021 – in line with guidance.

UK and international growth strategy

Third, Lloyds’ growth strategy is well balanced between the UK and international markets. As part of the ‘Helping Britain Prosper’ initiative, Lloyds is expanding its presence as the UK’s largest mortgage provider. Last year it lent £14.3bn to UK first home buyers.

The strategy also includes funding for the UK’s transition to a low-carbon economy and key growth industries. By 2022, Lloyds will invest more than £13bn in green and sustainable financing. It is also making around £12bn of discretionary investment in climate conscious strategies through Scottish Widows.

Lloyds also wants to increase its Corporate & Institutional banking business which has a significant international presence. Specifically, they want to expand their trading and origination capabilities in debt capital markets, foreign exchange and fixed income.

One of the risks for Lloyds is that the UK economy has significantly outperformed other Western economies over a long period of time. However, I feel that Lloyds’ expansion in Corporate & Institutional banking and energy transition businesses will compensate for lost opportunities elsewhere.

£2bn buyback announced

A positive addition to the stock was the £2bn share buyback plan announced in the Q4 results. Also announced was an increase in the bank’s 2022 dividend to 2.4p, a 20% increase.

Given the bank’s solid foundation, growth prospects and a recent sharp fall in its share price, I have added to the holding of Lloyds shares.