Should I buy Barclays or Lloyds shares for 2022?

So far this year, Barclays and Lloyds shares have trailed the FTSE 100. Which bank’s share price offers the best value and would I buy either?

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Over the past six months, the Lloyds (LSE: LLOY) share price fell 5% and there’s been a more substantial fall of 26% in the Barclays (LSE: BARC) share price. It’s interesting to see poor recent performance for both Barclays and Lloyds shares, as financial lenders traditionally perform well in a rising interest rate environment. So, are these FTSE 100 banking stocks oversold?

Let’s explore whether I’d buy Barclays or Lloyds today.

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Barclays shares

Barclays has been mired in difficulties recently. Last month, the bank discovered a clerical oversight dating back to 2019. It issued securities exceeding the amount registered with the SEC by $15.2bn. Consequently, it must now buy back the unregistered products, costing the bank around £450m in expenses. It also faces the spectre of possible regulatory fines.

With its £1bn share buyback scheme pushed back to the second quarter of 2022, it’s perhaps unsurprising that the Barclays share price has taken a more substantial hit this year (-26%) than Natwest (-3%), HSBC (+13%), and Lloyds shares (-8%). But have markets overreacted to Barclays’ blunders? Quite possibly.

It has stronger liquidity measures than other FTSE 100 banks with a CET1 ratio of 18.2% — almost 2% higher than Lloyds (its closest competitor on this metric). It also carries the cheapest price-to-book value at nearly 0.36 versus those of Natwest at 0.56, Lloyds at 0.59 and HSBC at 0.71.

Furthermore, Barclays’ financial results look healthy to me. Net operating income for 2021 increased 33% to £22.6bn and post-tax profit soared from £2.46bn to £7.23bn. Passive income investors will be pleased to note a rise in its dividend per share from 1p to 6p.

Lloyds shares

Lloyds stock has also struggled recently as investors reacted badly to news released last month that the banking group plans to close 60 branches. Additionally, full-year profits for 2021 were slightly underwhelming at £6.9bn, falling short of the consensus forecast of £7.2bn.

However, I’m not sure the trading reaction was entirely justified. The digitalisation of banking is an inevitable development in my view. While branch closures grabbed the headlines, the more significant figures for me are 12% and 27% increases in Lloyds’ regular online banking customers and mobile app users, respectively, over the past two years, which points to a bright future for the Lloyds share price.

Despite failing to hit profit targets, Lloyds’ £2bn share buyback programme dwarfs those of Barclays and Natwest at £1bn apiece. Lloyds also has a particularly strong domestic focus as Britain’s largest mortgage lender. With annual UK house price growth at 10.9% to February 2022, the shares are well positioned to take advantage of the ongoing property boom.

Which shares would I buy?

Both banks look oversold to me, although Barclays’ embarrassing errors give me some cause for concern. I prefer Lloyds, given a straight choice between the two. Fortunately, I can own both.

I’d add Barclays stock to my portfolio as the macroeconomic tailwinds generated by rising interest rates are too tempting to resist and I’m keen to own a bank with a greater international presence. I already own Lloyds shares, but the current share price is at an attractive level for me to buy more.

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Charlie Carman owns shares in Lloyds. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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