If you owned British banks’ shares in January 2020, then you’re probably disappointed today. In the worst economic downturn in 300 years, banks made massive losses by mid-2020. With loan losses soaring, the Big Four banks set aside billions of pounds in loss reserves. Hence, the share prices of Lloyds Banking Group (LSE: LLOY), Barclays (LSE: BARC), and NatWest Group (LSE: NWG) took a beating. But which of these FTSE 100 shares would I buy today to ride 2021’s rebound?
Lloyds: #95 in the FTSE 100
I’ll start with the biggest loser. The collapse in the Lloyds share price in 2020 was brutal. Among FTSE 100 members, Lloyds shares sit at #95 for price performance over 12 months. They have crashed by almost two-fifths (38.4%) since late January 2020.
As I write, the Lloyds share price hovers around 35.3p, almost half (49.7%) ahead of its low of 23.58p hit on 22 September. At this level, Lloyds is valued at £25.5bn. To me, that’s a modest price tag for a FTSE 100 firm with over 26m customers. With Covid-19 vaccines being rolled out, the second half of 2021 should see a strong economic rebound. When this arrives, Lloyds will be in the front line to benefit from this boom. Meanwhile, Lloyds has a rock-solid balance sheet comfortably able to absorb the short-term pain.
Barclays: ready to rebound
Although they did better than Lloyds, Barclays shares have plunged by almost a sixth (16.2%) in 12 months. This puts it at #72 in the FTSE 100 performance rankings — and only slightly worse than the index itself (-12.2%). Barclays faces similar problems to Lloyds. For example, with over 10m customers, Barclaycard is the UK’s biggest credit card and defaults are expected to soar. But this temporary pain now will be followed by long-term gain as the economy bounces back.
One positive for Barclays is that it still maintains a position in investment banking. As the stock market bounced back from the March meltdown, Barclays banked bumper profits from increasing trading revenues and corporate fund-raising fees. As a result, Barclays made a £611m pre-tax profit in the third quarter of 2020.
NatWest: RBS reborn
NatWest shares have dived three-tenths (30.0%) over 12 months, placing them at #89 in the FTSE 100 rankings. That’s better than Lloyds, but worse than Barclays. Formerly Royal Bank of Scotland, the bank faced collapse in the global financial crisis and needed a taxpayer bailout. As NatWest Group, the bank now focuses on providing savings and lending products to over 19m customers.
Of course, NatWest also had a rough 2020, yet still made an operating profit before tax of £355m in the third quarter. The bank also has enormous liquidity to draw on in hard times. Its Common Equity Tier 1 (CET1) ratio actually strengthening to 18.2% in Q3/2020. And, along with the other two banks, NatWest has a sound balance sheet, plus excess capital for resuming dividends this year. And NatWest shares trade at less than half their net asset value (NAV), only slightly higher than the other banks’ ratios.
Which FTSE 100 share would I buy?
If forced to, I wouldn’t refuse to buy all three banks’ shares today. Each has solid potential to rebound strongly as the economy recovers. That said, I think Lloyds shares could possibly double from their current low levels. With dividends set to resume later this year, all three FTSE 100 shares would be welcomed into my tax-free ISA for their future passive income!
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays 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.