Shares of Lloyds Banking Group declined approximately 1.9% to 104.73 pence in early London trading on Monday, underperforming its peers. The drop came as investors assessed a shifting interest rate outlook and a major sector acquisition.
Monetary Policy Uncertainty
The Bank of England's recent 5-4 vote to hold its key rate at 3.75% has fueled speculation of impending cuts, with four policymakers advocating for a 25-basis-point reduction. This has created uncertainty for UK banks, which have benefited from higher net interest margins. Sterling also faced pressure from political concerns and growing expectations for monetary easing.
NatWest's Strategic Move
Adding to the sector's focus, NatWest announced a £2.7 billion deal to acquire wealth manager Evelyn Partners, coupled with a £750 million share buyback. The transaction is seen as a push for fee-based revenue less tied to interest rates. NatWest shares fell following the news, and the bank indicated the deal would reduce its core equity tier 1 ratio by roughly 130 basis points.
Lloyds' Position and Forthcoming Report
Lloyds, a UK-focused retail bank, faces questions about how quickly lower rates could impact its earnings. The bank recently reported a 12% rise in 2025 pre-tax profit to £6.7 billion and launched a £1.75 billion buyback. It is targeting a return-on-tangible-equity above 16% for 2026 and anticipates over £100 million in additional profit from generative AI integration by 2026. Investors await the bank's full annual report, due February 18, for deeper insights into risk and capital.
Market attention now turns to Barclays, which reports earnings on February 10. The broader sector also remains cautious due to ongoing risks like the UK motor-finance commission dispute, which could lead to unexpected conduct costs.
