Why Now Is The Perfect Time To Buy Barclays PLC, HSBC Holdings plc And Royal Bank Of Scotland Group plc!


It’s been a very mixed 2014 thus far for investors in the major UK-listed banks. Indeed, while RBS (LSE: RBS) has gone from strength to strength and posted gains of 6% since the turn of the year, sector peer Barclays (LSE: BARC) has seen its share price tumble by 17% as allegations of wrongdoing have hit sentiment hard.

Meanwhile, HSBC (LSE: HSBA) has fallen in line with the wider market, being down 5.5% year-to-date.

Despite their differing share price performances during 2014, however, the three banks have one thing in common. They could all be worth buying right now. Here’s why.

Generous Support

When it comes to the performance of bank shares, they tend to mirror the performance of the wider economy in which they operate. This may appear to be a rather obvious statement, but is nevertheless highly relevant at present.

Indeed, although the Eurozone economy continues to hold back the wider global economic recovery, even the ECB is starting to accept that it needs to provide more support to the European economy. This has, of course, been a gradual process but, with a more dovish ECB President in Mario Draghi at the helm, it seems to be more willing than ever to provide an ultra-loose monetary policy that acts as a springboard from which its economy can begin to recover.

A Useful Backstop

This attitude is mirrored in the US and UK, where Central Bankers are at pains to convince the market that a tightening of monetary policy simply will not occur until the threat of deflation has gone away, we have full employment (or as close as possible to) and there is no slack left in the economy.

As a result, Central Banks in the developed world are essentially creating a highly desirable backstop. In other words, if the US, UK or European economies ever experience periods that are too challenging, central banks will step in to inject a course of ‘monetary medicine’. For banks such as Barclays, RBS and HSBC, this is great news.

Looking Ahead

Indeed, with Barclays, RBS and HSBC all reporting fewer write downs in their recent results, an improving UK economy is clearly having a positive impact on their bottom lines. Furthermore, all three banks are due to report strong profit levels in the current financial year and also have very upbeat growth prospects – especially since they have a useful backstop to rely upon.

Despite this, shares in the three banks continue to offer superb value for money. For example, they trade on price to book ratios of just 0.67 (Barclays), 0.39 (RBS) and 1.08 (HSBC), all of which indicate that the three banks remain very cheap.

While the investment world may seem like a very uncertain place right now, Barclays, RBS and HSBC appear to have bright futures and trade at attractive prices. As a result, despite the inevitable volatility that will occur over the short to medium term, they could all prove to be top notch investments for long term investors.

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Peter Stephens owns shares of Barclays, HSBC Holdings, and Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.