The FTSE 100's two-month tumble has exposed bargains among the banks.
In common with millions of British investors, I keep a close eye on the UK'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 16 March, the blue-chip FTSE 100 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 16/03/12 (p) | Price on 15/05/12 (p) | Change (%) |
|---|
| Barclays (LSE: BARC) | 254 | 185 | -27% |
| Lloyds Banking Group (LSE: LLOY) | 37.5 | 28.73 | -23% |
| HSBC Holdings (LSE: HSBA) | 580.4 | 544.2 | -6% |
| Royal Bank of Scotland (LSE: RBS) | 28.14 | 21.29 | -24% |
| Standard Chartered (LSE: STAN) | 1,662.5 | 1346.5 | -19% |
Source: Yahoo! Finance
As you can see, mega-bank 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 UK-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 | 5.0% | 2.1 |
| Royal Bank of Scotland | 8.8 | 0.0% | 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 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-nationalised banks remain: Lloyds and RBS. With little or no prospect of dividends in the coming year, these banks strike me as pure asset/recovery plays.
Lloyds has tangible net asset value (NAV) per share of 58.3p and trades at a 51% discount to underlying NAV. For RBS, tangible NAV per share is 48.8p, 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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> Cliff does not own any of the shares mentioned in this article.
