LONDON -- In common with millions of British investors, I keep a close eye on the U.K.'s biggest banks.
I do this for two reasons. First, because banks act as a good barometer of the fear and greed that periodically sweep financial markets. Second, because there will come a day when I will buy back into banks -- something I haven't done since 2007.
The falling FTSE 100
Since peaking at 5,966 on March 16, the blue-chip FTSE 100 (INDEX: ^FTSE)index of elite British companies has tumbled. As I write, the Footsie trades at 5,419 -- down almost 550 points (9.1%) since hitting its 2012 peak.
However, as you can see from the following table, the share prices of four big banks have been hammered much harder than the wider market.
|
Bank |
Price on March 16, 2012 (pence) |
Price on May 15, 2012 (pence) |
Change |
|---|---|---|---|
|
Barclays (NYSE: BCS) |
254 |
185 |
(27%) |
|
Lloyds Banking Group (NYSE: LYG) |
37.5 |
28.73 |
(23%) |
|
HSBC Holdings (NYSE: HBC) |
580.4 |
544.2 |
(6%) |
|
Royal Bank of Scotland (NYSE: RBS) |
28.14 |
21.29 |
(24%) |
|
Standard Chartered |
1,662.5 |
1346.5 |
(19%) |
Source: Yahoo! Finance.
As you can see, megabank HSBC is the only bank to outperform the FTSE 100 since the March peak, as its share price is down a mere 6%. However, the other four U.K.-listed banks have fared very badly, with price plunges ranging between 19% at Standard Chartered and 27% at Barclays.
Banking bargains?
The big question is: Have these steep falls of the past two months have brought any of the banks deep into value territory? Let's check their fundamentals to find out.
|
Bank |
Forward Rating |
Forecast Yield |
Dividend Cover |
|---|---|---|---|
|
Barclays |
6.4 |
3.4% |
4.3 |
|
Lloyds Banking Group |
13.5 |
0.2% |
31.6 |
|
HSBC Holdings |
9.3 |
5% |
2.1 |
|
Royal Bank of Scotland |
8.8 |
0% |
N/A |
|
Standard Chartered |
10.1 |
3.8% |
2.6 |
Source: Digital Look.
Looking at this list, there's something for almost every type of investor.
If you're a dividend devotee who's into defensive shares (as I am), then the best of these five to add to your portfolio would be global giant HSBC. It offers a forward yield of 5%, covered a healthy 2.1 times.
However, if you're more into buying value based on low price-to-earnings ratios, then Barclays is the pick of this bunch. It trades on an ultra-low rating of 6.4 times forward earnings.
If you prefer go-go growth in emerging markets, then pick Standard Chartered. It trades on 10.1 times forward earnings, while offering a dividend of 3.8%, covered a generous 2.6 times.
The two bailed-out, part-nationalized banks remain: Lloyds and RBS. With little or no prospect of dividends in the coming year, these banks strike me as pure asset or recovery plays. Lloyds has tangible net asset value per share of 58.3 pence and trades at a 51% discount to underlying NAV. For RBS, tangible NAV per share is 48.8 pence, so its shares trade at an even wider 56% discount to underlying assets.
In summary, each of these five banks has its attractions to different investors. It's up to you to pay your money and take your choice!
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