Lloyds Banking Group (LSE: LLOY) shares have retreated sharply from their 52-week high, tumbling 14% by 7 April amid a dual threat of regulatory uncertainty and international trade tensions. This dramatic reversal marks a sobering reality check for investors who had begun celebrating the stock’s promising start to 2025.
The recent decline was triggered by President Trump’s sweeping tariff announcements on 2 April, which sent financial markets into their steepest weekly decline since the pandemic. Despite Lloyds’ UK-centric business model, the bank’s shares weren’t immune to the global sell-off as Goldman Sachs raised its US recession probability from 35% to 45% almost overnight.
European banks have been hit hard because they tend to rise and fall more sharply with the economy.
For long-term Lloyds shareholders, the recent volatility reopens old wounds. The stock remains dramatically below its pre-financial crisis levels, with its current 68p valuation representing just a fraction of its former glory. The path to £1 per share — representing a 64% premium to current levels — seems increasingly distant despite the stock’s modest price-to-earnings ratio of 8.77, well below the FTSE 100 average of 12.
The bank’s £1.15 billion provision for potential motor finance mis-selling liabilities adds another layer of uncertainty. This regulatory cloud, reminiscent of the PPI scandal that haunted UK banks for years, threatens to undermine investor confidence just as Lloyds was finding its footing.
Yet some contrarians view the current price dip as a potential buying opportunity, with the forecast dividend yield now approaching 5%.
But the company’s solid fundamentals remain complex, with 2024 seeing net interest income decline 7% to £12.8 billion and profit before tax of £6.3 billion.
Looking ahead, Lloyds faces mixed signals from the interest rate environment. The Bank of England’s base rate, currently at 4.5%, is projected to decrease to around 3.5% by year-end and potentially reach 2.5% by 2027 according to Oxford Economics. While rate cuts typically compress banks’ net interest margins, Lloyds has implemented structural hedging strategies — often referred to as ‘the caterpillar’ — to stabilise revenues during rate fluctuations.
For investors weighing their options, the fundamental question remains whether the current headwinds represent a temporary setback or signal more profound challenges ahead. With the UK economy projected to grow modestly at 1-1.9% through 2027, Lloyds’ recovery path appears gradual rather than explosive.
The stock’s forward P/E ratio of 10.2 times currently factors in the potential regulatory fine, but analysts project this multiple to decrease to 7.5 times in 2026 and 6.2 times in 2027 as earnings normalise — suggesting potential undervaluation for patient investors willing to weather the current storm.
As Trump’s tariff policy unfolds and the Supreme Court deliberates on motor finance compensation, Lloyds shares face concrete short-term pressure. The stock’s price-to-book ratio suggests undervaluation, but clearing the 71p resistance from 2017/18 highs remains the immediate challenge before any realistic push toward £1 per share.