Bank shares used to form the defensive backbone of an investor’s portfolio – but in the past five years the beleaguered lenders have lost their shine.
We asked the experts for their verdicts on Britain’s top three high street hitters. Analysts stock ratings as collated by Bloomberg are also listed below.
Barclays
Barclays shares fell by 15pc in a matter of hours on Wednesday as it was revealed that the bank had been fined £290m for trying to rig key interest rates on which thousands of mortgages and savings rates are based.
Graham Spooner, investment research analyst at The Share Centre, said Barclays was still the best of a troubled bunch, but investors must be prepared to take a long-term view.
“There is an appetite among investors for the banking sector, both in the short and long term, and Barclays remains on our buy list for a UK high street bank,” he said.
But Mr Spooner was keen to stress to investors that it was more suitable for regular drip-feeding investment, as The Share Centre expects the volatility in the sector to continue.
“In the short term we have moved to a more neutral view for the regular investor in light of the Libor scandal. For now we would only recommend the share for the short-term trader and would suggest that the regular investor stays on the sidelines.”
The latest forecast for the bank was positive, but was accompanied with a warning of a slow start to the second quarter, as a result of increasing fears around the eurozone.
Mr Spooner concluded: “It is worth noting that Barclays has a greater exposure to volatile financial markets through its Barclays Capital operations, although this is falling, with profits from this area now forecast to make up around 44pc of group earnings in 2012.”
BUY 22 HOLD 9 SELL 3
RBS
Even aside from the recent internal systems error at NatWest – the repercussions from which are expected to last well into July – recent announcements from RBS have not been positive.
“The restructuring and rebuilding plans include decreasing exposure to problem economies such as Greece and Ireland and cost cutting. The ultimate aim is to end up with a profitable business that we, as indirect shareholders, will hopefully be able to sell off for a profit some time in the future,” said Mr Spooner.
“We assume investors who have not sold already are taking the view that the share price cannot go any lower and are looking to try to claw back at least some of the losses. However, these investors will have to be patient and it should be noted that in May the chairman stated that the shares would not return to past values in his lifetime.”
Even at the current depressed share price, The Share Centre advocated avoiding the stock and said there were better opportunities to be had in the sector.
Not everyone was ready to write off RBS, however. Investec bank analyst Ian Gordon said he rated RBS
as a buy at 243p, so the current share price was good value.
“It is hard to get overexcited by a raft of anticipated Moody’s downgrades for global banks, especially when the overall scale of ratings action is marginally lighter than expected. Of course, on the back of a 24pc three-week rally for RBS, such downgrades can be used as a suitable excuse for profit-taking,” he said.
“RBS has delivered a robust response to Moody’s – the serious issues faced by UK banks are already priced in.”
BUY 13 HOLD 13 SELL 6
Lloyds
The optimistic Mr Gordon also liked Lloyds – on a 12-month basis at least. Before March the stock was a hold, but he now considers the shares good value. Guy de Blonay, a financials fund manager at Jupiter, also liked Lloyds.
He said the management had a strong plan for the bank and were implementing it successfully.
Mr Spooner ranked Lloyds as a hold. He said shareholders should be aware there was no “quick fix”, but that, if they were happy to wait, most of the bad news was already priced in.
“The £13.5bn rights issue in 2009 was the largest ever by a European company and will hopefully be the last time Lloyds needs to tap investors for further funds,” he said.
“Investors who have held on hoping for a recovery will have to be very patient, as the UK’s austerity measures start to hit home. Even last year management suggested the turnaround could take up to five years due to problems being 'more intense’. This means there is little chance of any dividends for a while yet.
“Regulatory issues are another uncertainty looming large for the sector. However, as it does not have a significant investment banking arm, Lloyds is probably the least affected of the major banks.”
BUY 18 HOLD 9 SELL 5
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