Lloyds Banking Group
Shares in Lloyds Banking (LSE: LLOY)(NYSE: LYG.US) have had a good run this year. However, they have recently struggled to advance significantly above the level that the UK government recently began selling at.
Lloyds recently reported that at the end of September it had a core tier 1 ratio (a key measure of a bank’s safety) of 9.9%. This was up from 8.1% at the end of 2012. Lloyds’ continued profitability is protecting shareholders from future losses and increasing the chance that it may soon begin paying dividends again.
Unfortunately, Lloyds has little international diversity. This makes the bank particularly exposed to the domestic economy. The financial crisis highlighted the dangers of this strategy as UK-focused banks either went bust or nearly bust.
The demise of former competitors Northern Rock and Bradford & Bingley will make it much easier for Lloyds to win UK business than before. This will help Lloyds’ profitability.
Lloyds continues to rack up new PPI compensation costs. The recently quarterly announcement confirmed another charge of £750m. There is also the possibility of further fines and costs if Lloyds is found to have participated in exchange rate fixing.
Royal Bank of Scotland
I think that there is room for significant share price rises at RBS (LSE: RBS) (NYSE: RBS.US).
RBS still have some significant international assets. The bank has mortgage assets of around £20bn in its US arm Citizens and has a similar amount of exposure in Ireland. Although RBS has committed to beginning a sale of Citizens next year, it is expected to retain a stake into 2016.
RBS still retains considerable non-core assets of around £37bn. If these dubious assets get revalued downwards, the impact on profitability could be significant.
RBS continues to demonstrate the value of its business via disposals. This should make the bank a more profitable operation.
Majority shareholder in RBS, the UK government, has done much to undermine the company’s share price. For as long as the government is on the shareholder register, the risk of further expensive interference remains.
Given the relative share valuations (Lloyds trades at 1.5 times book value, whereas RBS trades around 0.8 times) I will be sticking with my RBS investment.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
> David owns shares in Royal Bank of Scotland but none of the other companies mentioned.