MARKET COMMENT
Brace Yourself For Banks

By Stuart Watson (TMFTiger)
July 12, 2001

I've always thought one bank was pretty much identical to the next. The only really difference is the colour of the logo and whether it prefers to have an eagle or a horse as its motif. The same goes for bank shares as well. Sometimes one will look marginally more attractive, perhaps bouncing back after some short-term problems. But taken together they constitute one big seething mass.

The banking reporting season takes place over the next few weeks. Banks are so unoriginal they even release all their results in one go as well. Most of the major banks are expected to deliver solid numbers. With the lapse of the Lloyds/Abbey deal the focus will be on squeezing the most out of domestic markets and general preening to make themselves look attractive to any potential European partners. Wealth management was very much the theme in the last set of results. Once again all the banks spotted the unique opportunity of this market at exactly the same time. 

Taken together the eight banks in the FTSE 100 still have a significant influence, accounting for 19% of its value.

Company                Mkt Value   P/E   Yield

HSBC (LSE: HSBA)             74b  14.9    3.8%
RBOS (LSE: RBOS)             42b  12.4    2.1%
Lloyds TSB (LSE: LLOY)       38b  12.7    4.5%
Barclays (LSE: BARC)         34b  12.1    2.8%
Halifax (LSE: HFX)           18b  14.8    3.4%
Abbey National (LSE: ANL)    17b  12.2    3.8%
Bank of Scotland (LSE: BSCT) 10b  13.7    2.0%
Standard Ch'd (LSE: STAN)    10b  14.6    3.0%

If I had to pick a favourite at the moment it would probably have to be Lloyds TSB (LSE: LLOY), due to its better dividend yield, followed by Royal Bank of Scotland (LSE: RBOS) for its growth prospects. But other than that the valuations are all pretty similar. All the major banks are valued on forward price to earnings ratios of between 12 and 15. Standard Chartered (LSE: STAN) remains the odd man out, being the most dependent on emerging markets. HSBC has additional attractions of being a global player, plus its greater size. Overall banks look to offer reasonable value at the moment, certainly compared to the main market, which is trading at around 20 times earnings.

More: Banking Sector discussion board