The Lloyds Banking Group (LSE: LLOY) share price is up around 15% in 2024. I’ve been bullish on Lloyds for quite some time, but my optimism hasn’t borne much fruit yet.

So today I have my bear hat on and I’m thinking about things that might go wrong with the bank’s shares in 2025.

Misselling and interest

The Financial Conduct Authority’s (FCA) currently looking into alleged misselling in the car loan business. Lloyds has already set aside £450m as a reserve. If it turns out badly, it could be a lot worse than that.

Bank of England rate cuts have already shaved a bit off Lloyds’ interest margins, and there’s sure to be more to come. Lloyds makes most of its profit from lending, so that’s a further threat for 2025.

On the bright side, increased lending could offset margin weakness. But potential borrowers could still be under pressure in 2025.

It’s the economy

A drying jobs market suggests we might see a recession. Oh, and the UK economy shrank for two months to October. It might not take too much more to tip us over the edge.

But the housebuilders are still strong, right? And as the UK’s biggest mortgage lender, Lloyds should surely benefit?

Well, early in 2024, the Competition and Markets Authority started probing what it called “information sharing” between the big FTSE housebuilders. They said it “could be influencing the build-out of sites and the prices of new homes“.

There’s been no conclusion yet, and any possible effect on the market can only be guesswork. But isn’t it the kind of uncertainty that could further hold back people thinking of borrowing to buy a new home?

Struggling for growth

In the third quarter, Lloyds recorded a rise in underlying loans of only 1%. Considering the reliance Lloyds has on lending for its profits, growth as weak as that doesn’t look anywhere near good enough to me to offset the feared reduction in interest margins in 2025.

And that was for the quarter ended September 30. It was before we saw the economic shrinkage extend to October, and before recruiters started reporting fewer job openings.

And could we be set for a revival of the so-called challenger banks, which were eating their way into the market before the great financial crisis? Some are starting to look strong again, and I could see a real threat emerging there.

Sell out, right?

So what does all this negativity mean for me? I must be set to sell my Lloyds shares, yes? Well, no, not at all. The thing is, all these things are known, and I reckon a lot of the danger is already built into the share price. We are, after all, looking at a forward price-to-earnings ratio of only 8.5.

I think things would have to turn out a fair bit worse than I expect for that to look too expensive. It’s the as-yet unknown threats that scare me the most. And I don’t know what they are.