Barclays and Lloyds: 2 UK Bank Stocks to Watch
Barclays PLC (LSE:BARC) and Lloyds Banking Group PLC (LSE:LLOY) are among the most prominent UK banks. And recently, both have seen their stock head in an upward trajectory as global pandemic lockdowns begin to ease. Since the start of 2021, the Barclays and Lloyds share price’s have increased by 18% and 32%, respectively. But can this upward trajectory continue? Let’s take a look.
Barclays Bank PLC
Barclays was established in 1690 and is headquartered in London. The bank and its subsidiaries provide financial products and services in the United Kingdom, other parts of Europe, America, Africa, Asia and the Middle East. These include retail banking, investment banking, credit cards, wholesale banking, wealth management and investment management services. It also deals in securities and issues credit cards.
How has the Barclays share price performed recently?
It’s no secret that the global pandemic had a devastating impact on the world’s economy. In early March 2020, the Barclays share price dipped almost by half. However, since the announcement of the covid19 vaccines, it has had a sustained recovery and returned to pre-pandemic levels.
Barclays reported £2.4bn profit before tax in the first quarter of 2021 compared to £0.9bn a year before. It also reported a net profit of £1.7bn in the 2021 first quarter, up from £605m in Q1 2020. In the last earnings call, it beat market expectations by 15.21%. Needless to say, this is good news. And if it can maintain its current performance, I believe the Barclays share price could be pushed even higher.
What’s more, looking at its 12-month performance, the stock has moved up by around 45%. By comparison, the UK banking sector is only up by 35% over the same period. In other words, the firm has managed to significantly outperform its industry.
What is the downside?
I think the low-interest-rate environment in the UK and in other western nations puts a check on its profitability. After all, a good portion of its revenue comes from charging interest on loans like mortgages and issuing debt to businesses. Besides this macro-economic factor, there is rising adoption of digital wallets offered by Financial Technology (FinTech) companies. I think it’s fair to say that firms like Paypal, Square, and Revolut are doing a good job at disrupting traditional banking. And that may prove to adversely affect the Barclays share price if the company cannot adapt to the shifting and competitive landscape.
The rising Lloyds share price
Lloyds has been around since 1695. And today is headquartered in London. Together with its subsidiaries, it provides banking and financial services, with a three-segment focus; Retail banking, Commercial banking, as well as Insurance and Wealth Management. It also offers digital and mobile banking services.
Lloyds’ share price is up around 43% in the past year. So just like Barclays, it’s also managed to stay ahead of its industry. Personally, I think the stock will continue to rise and here is why. In May 2021, the Bank of England raised its growth forecast of the UK economy in 2021 to 7.25%, up from 5%. Banks are one of the biggest beneficiaries of a stable growing economy. And so, that places Lloyds and its share price in a favourable position as I see it.
The UK bank also recently announced that it will soon resume a “progressive and sustainable dividend policy”. In my experience, such announcements are a clear sign of the management team’s confidence in the business. And the return of regular dividends could make the stock more appealing. In turn, I think the Lloyds share price could continue to see its share price rise.
What is the downside?
Just like Barclays, Lloyds is now having to contend with several fintech rivals. Many of these competitive firms have also been receiving a substantial amount of funding from investors. Should they prove to be popular with consumers, Lloyds may start losing some of its retail banking customers. Therefore, I wouldn’t be surprised to see the Lloyds share price suffer should it begin to lose its market share.
Barclays and Lloyds have both experienced a sustained recovery from the pandemic lows and are not about to slow down. At least, I don’t think so. The next catalyst for them could be their 2021 H1 report. These should provide more insight into how the companies are performing since lockdown restrictions have begun to ease here in the UK. Until then, I’ll be keeping both of these UK bank stocks on my watch list, along with these other investment ideas.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.