Lloyds’ share price has declined quickly and violently amid a global equity rout sparked by US growth concerns and a collapse of Japanese equities.

With shares trading around 54p—significantly below recent highs of 60p—investors may have their eyes on the FTSE 100 bank. However, headwinds are building that investors should consider.

Notwithstanding the global equity selloff rocking equity markets, Lloyds shares face several factors limiting income and eroding profit. Some argue that they aren’t fully priced at current levels and that investors may find better value at lower levels.

Lower interest rates

Although Lloyds shares rose steadily on the day after the release of half-year results, the update offered few positives over the coming 12-24 months. The declines in the last few days are more representative of Lloyds’s macro challenges in the short and medium term, which are likley to lead to weaker metrics than those reported last week.

The hammer blow to Lloyds shares came with the Bank of England interest rate cut and the firing of the starting gun on a series of rate decreases, which will ravage Lloyd’s all-important net interest margins (NIM). 

Lloyds NIM was down 10% in the first half, and it’s very difficult to see how the bank doesn’t post an equally disappointing NIM for the second half of the year. 

Net Interest Margin (NIM) is a key banking profitability metric that measures the income derived from the difference between interest earned on lending activities and that paid out for deposits. Lower interest rates are rarely good for banking NIMs, and this threatens Lloyd’s profitability in the coming periods.

Lloyds is the UK’s largest mortgage provider, and the recent rate cut has already started to affect mortgage rates, signalling lower income for banks across the board.

Rising unemployment

There are a range of economic data points which will present challenges to Lloyds and other UK banks. However, none threatens profitability more than the UK’s rising unemployment rate. Since hitting a low of 3.8% in December 2023, the UK unemployment rate has increased to 4.4%.

There is a strong correlation between the unemployment rate and the UK housing market—one that investors should be acutely aware of. When the unemployment rate increases, defaults and repossessions rise, leading to higher provisions by banks for bad debts. Should Lloyds be forced to make such provisions, it will erode already-pressured income caused by lower interest rates.

You may think the rate cut last week will provide a boost to mortgage holders and the UK housing market. And to some extent, it will. However, if a greater number of people start losing their jobs, saving a couple hundred pounds on a mortgage will be of little consequence if they lose their income entirely. Such a scenario is not guaranteed, but the probability of more people finding themselves in difficult situations is rising.

In addition to provisions for bad debts amid rising default rates, Lloyds investors will be conscious the group is facing potential litigation costs from a car finance probe.

Lloyds share price

With the bank’s headwinds building, some investors will wait for the Lloyds share price to hit 50p before buying, while others will keep their eyes on the low 40s before wading back in. 

The Lloyds dividend will provide some compensation for waiting for any capital appreciation. However, the potential yields to be locked in at lower levels may give some reason for pause.

David Beckham-backed Guild Esports (LSE: GILD) has announced the signing of a letter of intent (LOI) with DCB Sports LLC to dispose of all Guild assets and liabilities.

Guild Esports was listed at 8p in 2020 in the midst of the pandemic and a spike in interest in virtual gaming. However, the buzz has died down as gamers returned to the real world and shares now trade at just 0.2p.

Last week, Guild Esports shares plunged after announcing cash constraints, leaving them with just £25,000 in cash and relatively large receivables and liabilities.

With the company on the ropes financially, management has opted to throw in the towel and dispose of all its assets effectively ending its time as a London-listed company. The potential amount has not been disclosed.

DCB Sports intends to maintain and elevate the Guild brand and has pledged to provide robust financial backing, including backing up future working capital needs and supplying ongoing capital.

DCB Sports’ ventures span from a stake in Ice Cube’s Big3 basketball league to co-ownership of The Bay Golf Club alongside NBA stars Steph Curry and Klay Thompson. With investments in Venezia FC, the National Thoroughbred League, and TMRW Sports (co-founded by Tiger Woods and Rory McIlroy), DCB Sports has demonstrated a knack for identifying unique opportunities in the sports and entertainment sectors.

The deal remains subject to the successful negotiation of a definitive legal agreement and the completion of due diligence. Furthermore, Guild’s directors have made it clear that they are still in discussions with other potential suitors, leaving the door open for a rival bid for the assets

Guild’s shares were 66% higher at the time of writing.

In a move to advance its recently announced hydrogen storage projects, UK Oil & Gas PLC (LON:UKOG) has successfully raised £1 million through a share placing. The AIM-listed company announced the conditional placement of 2 billion new ordinary shares at 0.05p each, a 37% discount to the closing price on 2nd August 2024.

UKOG has also revealed plans for a separate Retail Offer in addition to the £1 million placing. The company intends to release further details regarding this offer in a separate announcement.

Although all investors have had the opportunity to participate in the round, the shareholder base may be a little perturbed that the company used a recent rally to secure a placing.

This fundraising effort’s primary purpose is to finance crucial activities that will significantly progress UKOG’s hydrogen storage projects, including initiating essential environmental surveys, engineering studies, and other necessary works.

Furthermore, the newly acquired funds will enable UKOG to advance negotiations with potential strategic joint venture partners and finalise a land option agreement for an additional hydrogen storage site. The company plans to bolster recognition of its hydrogen projects after already receiving from major industry players such as RWE, Sumitomo, and SGN.

CMC Markets UK Plc, operating under the name CapX, served as the sole placing agent for this significant funding round.

“The funding, together with the support from leading UK energy and hydrogen-space infrastructure players, RWE, Sumitomo and SGN, means we can now materially advance our nationally significant projects towards the goal of a competitive Revenue Support application,” said Stephen Sanderson UKOG’s Chief Executive.

“It will also greatly help us to secure at least one major strategic partner as a joint venture participant and to enhance our lobbying efforts with our new Labour government, who to date seem motivated and committed to making hydrogen and its storage a fundamental part of Britain’s renewable superpower ambition.”

IAG was flying high at the top of the FTSE 10 on Friday after the airline announced its first dividend since before the pandemic and abandoned its pursuit of rival Air Europa.

Shareholders will be delighted that IAG’s progress has cleared the way for the airline to pay a dividend after revenue and operating profit grew in the first half of the year.

IAG shares were 6% higher at the time of writing.

“British Airways owner IAG has maintained a steady flight path in 2024 with the international carrier faring considerably better than its national counterparts. Long haul travel has held up well with robust demand for air travel fuelling increased free cash flow, boosting shareholder returns as a result,” said Mark Crouch, Market Analyst at eToro

“While profits were down a touch from last year, the company’s balance sheet is in a far healthier state. Investors would need to go back to before the pandemic for the last time IAG paid a dividend, so today’s announcement of an interim dividend is a strong statement that the business has at last broken free of the pandemic fallout.”

Although investors were clearly encouraged by the reinstatement of the dividend, they will also be reassured by IAG’s prudent approach to capital allocation with the calling of the takeover of Air Europa.

“Walking away from a proposed takeover of Air Europa also shows the company has discipline and isn’t prepared to spend a long time fighting antitrust regulators to get the deal over the line. Management has clearly decided its time is better spent elsewhere and to just move on. Investors often like companies that take decisive action,” said AJ Bell’s Russ Mould.

“While the likes of Jet2 and EasyJet are heavily dependent on people flying off for their summer holidays, International Consolidated Airlines has a much wider range of customers as it has a mixture of short and long-haul destinations. That broadens its opportunities to make money.”