Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Which Bank Should I Buy?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

LONDON -- Royal Bank of Scotland Group (LSE: RBS  ) , Lloyds Banking Group (LSE: LLOY  ) (NYSE: LYG  ) , and Barclays (LSE: BARC  ) (NYSE: BCS  ) had a terrific run last year. Shares in Lloyds rose by 85%, RBS gained 60%, and Barclays managed a 49% increase.

After a performance like that, you might think it was too late to buy into the banking recovery, but I've recently been taking a closer look at the figures with a view to buying shares in one of these banks myself, and I think that one of them, in particular, still offers compelling value.

Banking value
Let's start with a look at some of the banks' key metrics:


Share Price (pence)*

NTAV (pence)**


Forward P/E

2013 Forecast Dividend Yield

Royal Bank of Scotland






Lloyds Banking












*Opening share price on Feb. 7, 2013. **Net tangible asset value per share taken from Q3 2012 interim report from each bank. P/TB = price-to-tangible-book-value ratio.

The main value attraction is that all three banks have a P/TB ratio below one -- meaning that, in theory, they would be worth more if they were liquidated than their current market value. Healthy banks generally trade at or slightly above book value -- HSBC has a P/TB ratio of 1.2, for example -- so these banks' discounts represent an attractive value opportunity, if you believe they will eventually recover.

Although Lloyds and RBS don't currently pay dividends, both are keen to restart dividend payouts, and brokers' forecasts are penciling in dividends from both banks this year. This would improve the potential returns from each bank and would be likely to drive further share price growth, as it would encourage institutional investors to buy back into these stocks.

How reliable are these asset values?
It's important to remember that the main reason these banks are trading below their NTAV is that doubts remain over whether this value can ever be realized. The banks aren't out of the woods yet.

Over the last three years, all three banks have been forced to write down the value of some of their assets and sell others. During the first nine months of 2012 alone, all three reduced their estimate of NTAV:


NTAV on Dec. 31, 2011 (pence)

NTAV on Sept. 30, 2012 (pence)


Royal Bank of Scotland




Lloyds Banking








NTAV = net tangible asset value per share.

Legal dramas
Asset risk aside, these banks also face legal problems. On Tuesday, Barclays announced that it was increasing the amount of money it was setting aside to deal with claims relating to missold interest rate-hedging products by 400 million pounds, taking the total provision to 850 million pounds. At the same time, it said it was adding another 600 million pounds to the compensation pot for payment protection insurance claims, taking that total to 2.6 billion pounds -- hardly business as usual.

Wednesday saw Royal Bank of Scotland in the spotlight once more, as it confirmed that it would pay 390 million pounds of fines to U.K. and U.S. authorities to settle claims relating to LIBOR manipulation.

Lloyds is also heavily involved in the PPI scandal, and the banks may yet face further regulatory investigations into past misdeeds -- RBS, for example, faces charges of fixing Euribor and is involved in an investigation relating to money-laundering in the U.S.

The bank I'd buy
The bank that attracts me the most is Barclays. Although it has had its fair share of legal and regulatory problems, it hasn't required a state bailout and doesn't face the prospect of further state intervention in its operation or management.

Barclays' discount to tangible book value is almost as large as that of RBS, and it didn't reduce its NTAV estimate as much as Lloyds or RBS in the first nine months of last year. What's more, Barclays offers a 2.7% forward dividend yield, and its forward P/E of 7.9 is much lower than that of the other banks, making a near-term uprating of its share price more likely.

A better growth choice?
I believe banking shares like Barclays have the potential to deliver significant growth as they recover. However, I understand that you may still be wary of investing in these banks -- because, frankly, who knows what skeletons are still lurking in their cupboards?

Luckily, there are some strong contenders for growth shares outside the financial sector. I suggest you take a look at one U.K. stock that outperformed the FTSE 100 by 32% in 2012 and has delivered 44% earnings-per-share growth since 2009. It's already ahead of the wider market in 2013, too. You can find full details on this company -- which the Fool's analysts believe could be seriously undervalued -- in this free report: "The Motley Fool's Top Growth Stock For 2013." Just click here to download your free copy now -- but hurry, as it will only be available for a limited time.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2243041, ~/Articles/ArticleHandler.aspx, 9/30/2016 8:10:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 7:54 AM
BARC $162.15 Down -5.15 -3.08%
Barclays CAPS Rating: No stars
LLOY $54.00 Down -1.49 -2.69%
Lloyds Banking Gro… CAPS Rating: No stars
RBS $173.90 Down -3.20 -1.81%
Royal Bank of Scot… CAPS Rating: No stars
BCS $8.39 Down -0.33 -3.78%
Barclays CAPS Rating: ***
LYG $2.87 Down -0.11 -3.69%
Lloyds TSB Group CAPS Rating: ***