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The Barclays (LSE: BARC) share price has had a rip-roaring 2024, soaring 79.3% so far. This is brilliant news for Barclays investors but a pain for me. When faced with the choice last year I bought Lloyds Banking Group instead.
My Lloyd shares are up a respectable 15.33% in 2024. The trailing yield of 4.97% has lifted my total return towards 20%. That’s nothing to complain about but everything in life is relative, and relatively speaking, Lloyds has been relatively rubbish compared to Barclays.
And I’m relatively annoyed about it. I’m hopeful too, because I know that investing is cyclical. It’s not unknown for winners and losers to change places.
Last year saw an overnight change in investor attitudes to the big FTSE 100 banks. It began on 19 February, when NatWest Group posted a stellar set of results. Its £6.2bn pre-tax profit was the biggest since the financial crisis, while it also announced a £300m share buyback.
NatWest jumped on the day and remains this year’s biggest FTSE 100 winner of them all, having rocketed 101%.
On 20 February Barclays actually reported a drop in full-year 2023 profits, from £7bn to £4.3bn. Investors soon got over their disappointment as the board pledged to lavish them with £10bn in dividends and share buybacks over the next three years.
Barclays also benefitted from high interest rates, which widened its net interest margins from 2.86% in 2022 to 3.98%.
The sector-wide recovery spread to Lloyds, and for a while my shares were holding their own. Then the motor finance mis-selling scandal erupted over the summer. It turned out that Lloyds had outsized exposure through its Black Horse division, while Barclays didn’t.
RBC Capital Markets recently estimated that Lloyds could take a £3.2bn hit. Barclays may be on the hook for a modest £400m.
The share price should rally with luck
Another plus for Barclays is that it still has exposure to investment banking, a market Lloyds exited after the financial crisis. While it’s a risky sector it gives investors the kind of excitement they won’t get from Lloyds.
While Barclays competes with the likes of JPMorgan and Goldman Sachs, Lloyds has to console itself with the nuts and bolts of retail and small business banking.
Barclays is likely to get another lift as the UK government plots to loosen the rules on banker bonuses. With Donald Trump heading back to the White House, casino capitalism may be on its way back. Lloyds won’t be invited. Maybe that’s not a bad thing, given the mess it’s got itself into over boring old car loans.
Lloyds looks better value today with a lower price-to-earnings ratio of 7.29, while Barclays looks pricier than it did at 9.73 times. It has a higher trailing yield of 4.97%, while the Barclays yield has shrunk to 2.95%.
With luck, Lloyds will get a lift once the motor finance scandal is cleared up. In the spirit of optimism, I expect its shares to gain ground on Barclays next year. But in the longer run, I still suspect I may have backed the slower horse.
