I was feeling pleased with last year’s purchase of Lloyds Banking Group (LSE: LLOY) but then I looked at the Barclays (LSE: BARC) share price and couldn’t help feeling a pang of regret. My gosh, it’s done well.
My Lloyds shares have just dropped 12.92% in a week as the motor finance mis-selling scandal looks in danger of spinning out of control. They’re still up 34.03% over the year but that’s nothing on Barclays.
Barclays’ shares have rocketed 85.29% over the last year and with no motor finance worries, they’ve climbed 7.82% in what has been a bumpy month for the FTSE 100. Has the whole thing gone too far?
Maybe I shouldn’t have bought Lloyds shares!
I always knew Barclays had faster growth potential than Lloyds, having clung onto its investment banking arm in the aftermath of the financial crisis. It boasts a thriving US credit card business, too.
That gives it more whizz, something Lloyds lacks as it sticks to the nuts and bolts of UK personal and small business banking.
Which would be fine if management didn’t keep getting muddled in mis-selling. Lloyds was hardest hit by PPI, too. I don’t expect motor finance to cost it another £23bn, but it really should know better by now.
Barclays has had its regulatory troubles too, typically in the US. On 1 October, it agreed to pay $4m for violating US Commodity Futures Trading Commission (CFTC) rules on reporting swap transactions.
That’s a fraction of its $361m settlement to resolve US Securities and Exchange Commission charges due to over-issuances of securities in 2022. Given iron-hard US regulators, there will be more of these, but Barclays shrugs them off better than Lloyds.
Barclays is making lots of money. On 24 October, it reported an 18% jump in Q3 profits before tax to £2.2bn. That beat forecasts of £2bn, helped by higher revenues and lower impairments.
This FTSE 100 bank is coming into its own
Investment banking fees are finally starting to pick up, while equity and debt market trading activity is also rising.
Lloyds has a higher trailing yield of 5.16%, albeit boosted by the recent share price slump. That easily beats Barclays at 3.38%. However, markets reckon Barclays has cash for £10bn in distributions between now and 2026, weighted toward share buybacks.
Both Lloyds and Barclays may take a hit as interest rates start to fall – assuming they do. This will squeeze net interest margins, the difference between what the banks pay savers and charge borrowers. On the other hand, lower interest rates may revive mortgage lending.
With its US exposure, Barclays could be on the hook if the US Federal Reserve fails to engineer a soft landing, or the presidential election brings unknown terrors. Yet, despite its terrific run, the shares still look great value with a price-to-earnings ratio of 8.74. That’s only slightly pricier than Lloyds at 7.06% times.
Barclays hasn’t jumped the shark. There’s nothing far fetched about its blistering performance and I’ll buy its shares in November. Better late than never. As for Lloyds, I’ll tough it out. It still looks like a solid long-term buy and hold to me.
