Investing: Lloyds Banking’s 2008 deal still weighs it down

Question: The situation at Lloyds Banking Group seems dismal. Is there hope for the future?

Answer: This is the case of a fire-sale bargain gone bad.

This London financial services company, 41% owned by the British government, boasted nearly one-third of the mortgage market in Britain after its 2008 purchase of beleaguered rival HBOS.

But the seemingly low price paid at the height of the financial debacle has proved costly because of significant losses attributed to prior practices of the acquired company.

While acknowledging in its mid-year report that it will sell more than 600 of its branches on orders of the European Union, it expressed concern that British regulators might increase that number. In its ongoing retrenchment, it reportedly is cutting thousands of jobs, and it aims to pull out of many countries where it does business.

Shares of Lloyds Banking Group recently had been down more than 50% this year.

A current or prospective Lloyds Banking Group shareholder must decide whether its business has now stabilized, whether it can get HBOS operations in line with its own more conservative practices and whether necessary cost-cutting will constrain future growth prospects.

This historic name in banking has the breadth of operations to deliver respectable profits, though they are unlikely to be as robust as in earlier years. The British economy and property market will be factors in whatever type of resurgence the company might experience.

With a divergence of opinions, Lloyds Banking Group shares receive a consensus “hold” rating from Wall Street analysts, according to Thomson Reuters. That consists of 10 “buys,” two “overweights,” eight “holds,” two “underweights” and four “sells.”

Masters International Investors fund is wide-ranging

Question: I own shares of Masters International Investors fund and am hoping for some decent gains. Is this possible?

Answer: This multi-manager fund has successfully navigated stormy international waters with a distinctive compact portfolio.

Its advisor, Litman Gregory Asset Management, has six respected foreign stock managers select eight to 15 stocks apiece. This portfolio, which displays the courage of their individual convictions, is wide-ranging.

The $1.7-billion Litman Gregory Masters International Investors fund recently had a one-year return of 2% that placed it above the midpoint of large foreign growth-and-value funds. Its five-year annualized return of 1% and 10-year annualized return of 7% ranked near the top of its peers.

The fund “can be a stand-alone international fund and is distinguished by the limits on how many stocks each manager can contribute,” said William Samuel Rocco, mutual fund analyst with Morningstar Inc. He noted that while the fund is primarily large-cap, it also includes mid-cap and emerging-market holdings. “Other multi-manager funds with hundreds of stocks from each manager get kind of sprawling, but that is not the case here.”

About 20% of the portfolio is in financial services, with other concentrations in industrial materials and consumer goods. More than half of assets are in Britain and Western Europe, with Japan also significant.

This “no-load” (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.39%.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.