Nonetheless, to me Barclays has proven time and again during the past five years that the bank cannot be trusted, and the group seems to lack a coherent growth strategy.
On the other hand, OneSavings has made an enormous impact on the British banking industry in a very short space of time, and the young company is outperforming Barclays on many metrics.
A compelling argument
Comparing several key ratios of the two banks presents a compelling case for investment.
For example, OneSavings’ November trading update reported that the bank is on track to report a full-year net interest margin (the difference between the interest income generated by banks and the amount of interest paid out) slightly ahead of the 3.05% delivered in the first half of 2015. Barclays’ net interest margin for the first nine months of 2015 was 2.99% at its personal and corporate banking division. Barclays’ margin was unchanged year-on-year.
Elsewhere, OneSavings expects to report a full-year cost income ratio of around 26%, less than half of Barclays’ reported cost income ratio of 65% for the first nine months of the year.
Also, OneSavings is growing much faster than its larger peer. During the first nine months of 2015, OneSavings’ loan book rose £986m to £4.9bn and management expect full-year loan book growth to exceed 30%. During the same period the Barclays group loan book only expanded by 1%.
OneSavings’ outperformance on all three of the key metrics above means that the bank is much more nimble and profitable than its larger, lumbering peer.
Last year, Barclays’ return on equity — a key measure of bank profitability — was reported as 9.2%. The bank’s global footprint and complex business, which has become bogged down in regulation held down returns.
However, OneSavings reported an ROE of 31% for the same period.
Fortunately, OneSavings’ strong operating performance seems to have gone unnoticed by the wider market. Despite the bank’s rapid growth, its shares are still trading at a relatively low earnings multiple.
At present, OneSavings’ shares are trading at a forward P/E of 11.7 even though City analysts estimate that the bank’s earnings per share are on track to expand 40% this year. Further earnings per share growth of 10% is expected next year. If the bank meets these forecasts, it will have tripled earnings per share in a period of just four years.
On the other hand, even if Barclays meets City expectations for growth this year, the bank’s earnings will have fallen by a fifth since 2010. City analysts are currently expecting the troubled bank to reported earnings per share of 22.3p for full-year 2015. Based on these figures Barclays is trading at a forward P/E of 10.2. The bank’s shares currently support a dividend yield of 2.9%.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.