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Investors are very happy FTSE 100 banks recently. Of course I have my choice of field, Lloyds Banking Group. But I could easily break up Barclays (LSE: BARC), NatWest, HSBC Holdings share priceor Standard Chartered. They all brought champagne back in the last few years. But will things be okay?
We shouldn’t read too much into short-term movements, but I still see that the situation has changed this week. My Lloyds shares are down around 3.5%. They’re up 60% in 12 months and 150% in two years, with more upside, so I’m not really complaining. Maybe I just got spoiled by all the fizz and fun.
Some have fallen too far. NatWest fell 8.5% during the week, while Standard Chartered fell 6.5%. Barclays (3.5%) and HSBC (2%) both slipped.
Shares in HSBC, Lloyds, and NatWest are flying
At some point, the steam had to come out of the field. Banks are no longer cheap. The Lloyds price-to-earnings (P/E) ratio recently exceeded 15. When I bought in 2023, there were only six of us. As share prices have risen, yields have fallen. New investors are not getting the same income as they were two years ago.
Banks also enjoy high interest rates. This allowed them to widen their interest margins, the gap between what they pay for savings and what they charge borrowers. If prices go down, that may disappear.
If my guess is correct and we have reached the peak of bank shares, the peak is likely to be on Wednesday (10 February). Barclays posted a 13% jump in annual profits to £9.1bn, announced a £1bn buyback and pledged to return £15bn to investors over two years. Stocks rose, but did not explode.
Barclays has done very well
Why? I suspect it’s because most good news already has its price. Barclays’ P/E rose to 17, above its 10-year average of about seven to nine years, depending on the source. Even great shareholder rewards lose their luster when investors expect them to turn off the lights. Investors are looking beyond their booming banking and investment operations, to focus on the declining side of UK retail banking and wealth management. So what?
I am not selling my Lloyds shares. I intend to hold them for a decade or more, allowing the benefits and growth to compound. If they struggle, at least my reinvested profits will pick up more stock at a lower price. I would not suggest that investors consider loading up on other bank stocks. Stock price growth often comes in waves. I will stay strong and wait for the next big break.
We have to look at slow progress. The party atmosphere is fading. Prices are rising. Revelers may move on to the next big shindig. But I am always honest. If we get more dips, I’ll be tempted to do something.
Barclays offers the international exposure that Lloyds lacks, and would sit well in my SIPP. Its P/E has already fallen to around 10.5 as new capital gains are made. I think it’s worth considering at that price, and if it moves forward, I won’t be able to resist. The party continues.
