Barclays (LSE: BARC) and Lloyds (LSE: LLOY) share prices both have their attractive qualities, and both appear cheap on specific metrics. What’s more, both have significant exposure to the UK economy, which could make them attractive recovery plays.
However, if I had to buy just one of these companies, I think one has a much brighter outlook than the other.
The Lloyds share price outlook
Lloyds is a UK bank. It’s the largest mortgage lender in the country and one of the big four banks for consumers. It did have some international operations, but sold these off after the financial crisis to raise cash. Today, it’s a bellwether for the UK economy.
In recent years, the company’s also been expanding into different sectors. It’s developed a wealth management division with sector expert Schroders and bulked up its credit card business by acquiring MBNA several years ago.
These efforts have helped diversify the group away from its core lending business. They’ve also helped the organisation increase profit margins as interest rates have remained depressed.
As the UK economy recovers, I think the Lloyds share price should follow suit. Economic growth should translate into higher demand for loans and more credit card spending. This should yield more income for the enterprise.
That said, the bank’s exposure to the UK is also a risk. With no international diversification, Lloyds is reliant on the performance of the domestic economy. If it starts to stumble again, it’ll affect the lender’s recovery.
Barclays’ Wall Street presence
While Lloyds is a UK bank, Barclays has an strong international presence.
The group’s decision to acquire part of the defunct Lehman Brothers after the financial crisis proved to be a savvy one. Last year, as companies worldwide rushed to raise cash from their investors during the pandemic, Barclays achieved windfall profits.
Its capital markets division helped arrange financing for struggling corporations, which provided much-needed diversification when the rest of the business was planning for significant loan losses.
This diversification’s the primary reason why I think Barclays has better potential than the Lloyds share price. It’s less reliant on the UK economy and has more products to offer customers around the world. In an increasingly globalised world, this is going to become an essential competitive advantage.
Still, diversification can be a drawback as well as a benefit. The capital markets business requires a lot of investment, and it can also lose money for the enterprise. Multi-billion-pound losses are not uncommon at investment banks.
Despite this risk, I’d buy Barclays over Lloyds for my portfolio. As the global economy recovers from the pandemic, I think betting on just one market like the UK could be a mistake. Barclays has a presence around the world, which should enable it to benefit from the wider global recovery.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Lloyds Banking Group, and Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.