UK Bank Shares: An In-Depth Look at the Big Four UK Banks

July 22, 2021 09:48 UTC

UK bank shares have been out of favour with investors since the “Great Recession” of 2008 - from which the sector has still not recovered. However, after the Covid-induced market lows of March 2020, many UK bank shares have enjoyed a strong first half to 2021. This recovery has led some spectators to question whether investing in UK banks may be a good option for riding out the post-pandemic recovery.

In this article, we will explore the prospect of investing in UK bank shares in 2021, in particular examining the UK’s big four banks; Lloyds, Barclays, HSBC and NatWest.

UK Bank Shares – The Current Climate

For over a decade now, the UK banking sector has weathered fairly torrid conditions – which have led investors to eschew UK bank shares in favour of alternative options.

First was the financial crisis of 2008 and its aftermath, which hit banks especially hard, leading to the government famously bailing out both Lloyds Bank and NatWest – then the Royal Bank of Scotland.

The next shock came from the result of the 2016 Brexit referendum, where the UK decided that their future lay outside of the EU and its single market. This was followed by more than four years of drawn out negotiations and uncertainty regarding the future relationship between the two.

Then, of course, in March 2020 the coronavirus pandemic arrived in Europe, forcing many countries into economic lockdowns and causing UK bank shares to plummet.

However, since the last few months of 2020, most UK bank shares have been on a path of recovery. Unlike many other industries, UK banks found themselves well provisioned to deal with the downturn caused by the pandemic and, in their first quarter results of 2021, the big four banks either released money to previously earmarked to cover losses, or reported a smaller negative impact than had been expected.

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Lloyds Bank Shares

Despite at one point having a large overseas presence, these days Lloyds is very much a UK centred operation. Likewise, despite previously having an investment banking arm Lloyds now solely concentrates on retail banking. In fact, it is the largest retail bank in Britain.

Due to the change in structure, the future success of Lloyds is now solely reliant on the UK economy. Is this a good thing? Yes and no. A UK-centric operation means that Lloyds is no longer vulnerable from external, overseas shocks and, at a time when uncertainty due to the Covid-19 pandemic is rife across the globe, this can certainly be seen as a positive outcome.

However, at the same time, its dependency on the future of the UK economy can be seen as a negative. Lloyds’ future success, therefore, is reliant on the UK economy flourishing, not only post-pandemic, but also post-Brexit.

Below we can see a long-term price chart of Lloyds shares.

Depicted: Admirals MetaTrader 5 – Lloyds Banking Group PLC Weekly Chart. Date Range: 5 July 1998 – 17 July 2021. Date Captured: 17 July 2021. Past performance is not a reliable indicator of future results.

The plunge in price highlighted by the red rectangle is the result of the financial crisis in 2007/8 – after which the UK government acquired a 43.4% stake in the group. In 2017, the UK government confirmed that all its shares had been sold.

Before the economic crisis, Lloyds shares were trading at around 280 GBX, however, in the 12 years or so since the crash, Lloyds Bank shares have been stuck in a range between 20 and 90 GBX.

Depicted: Admirals MetaTrader 5 – Lloyds Banking Group PLC Daily Chart. Date Range: 1 March 2019 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

Zooming in to the more recent price history of Lloyds Bank shares, we can see the full effects caused by the outbreak of Covid-19 in February 2020. However, after reaching an 8 year low of 23.55 GBX in September 2020, Lloyds shares have been following a clear upward trajectory, although they are yet to recover their pre-pandemic levels.

Lloyds Bank reported better than expected results in Q1 2021. Although their net income was £3,664m – down 7% from the £3,952m in Q1 2020 – their post-tax profit was £1,397m – more than three times the £480m in Q1 2020. This increase was largely due to a significant improvement in asset value when compared with the same quarter in 2020.

These results and indeed the recent performance of the Lloyds share price are optimistic signs, however, its reliance on the UK economy may be unattractive to some.

Barclays Shares

The next UK bank shares we will look at are Barclays shares. Unlike Lloyds, Barclays maintains its international presence, operating worldwide, and has a large investment banking section alongside its retail bank offerings.  

An international presence provides investors considering investing in Barclays shares with diversification, as, unlike Lloyds, the success of Barclays is not reliant only on the UK economy.

Depicted: Admirals MetaTrader 5 – Barclays PLC Weekly Chart. Date Range: 9 August 1998 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

In the long-term price chart of Barclays shares above, we can again see the crash caused by the economic crisis in 2007/8 highlighted in red. Despite initially recovering from its low of 55.52 GBX in January 2009, the Barclays share price has been following a downward trend ever since.

Depicted: Admirals MetaTrader 5 – Barclays PLC Daily Chart. Date Range: 6 March 2019 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

Looking closely at the development of the Barclays share price over the past two years, despite falling to its lowest level since 2009 due to the outbreak of Covid-19, the Barclays share price has recovered strongly, if not somewhat sporadically, and has already recovered its pre-pandemic share price.

Barclays’ Q1 results reported that revenue was down 6% to £5,900m when compared with the same quarter in 2020. However, its profit after tax of £1,903m was considerably higher in Q1 2021 than in 2020, more than double in fact.

HSBC Shares

HSBC is another worldwide operation. It is the second largest bank in Europe and has a strong presence in Asia, where it was originally founded in British Hong Kong – hence its initials, which are derived from its original name, The Hong Kong and Shanghai Banking Corporation.

Indeed, the majority of HSBC’s income comes from Asia, in particular Hong Kong. In their annual results for 2020, HSBC reported an overall profit before tax of £8,777m. However, the profit before tax for their Asian operations were actually $12,832m and were brought down mostly by a loss of $4,205m in Europe.

This connection with Asia has no doubt been beneficial to HSBC in recent years as economies have boomed, but it has also put the bank in the middle of geopolitical tensions between the West and China.

Depicted: Admirals MetaTrader 5 – HSBC Holdings PLC Weekly Chart. Date Range: 9 August 1998 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

In the long-term price chart of HSBC shares above, again we see the effects of the “Great Recession” highlighted in red. However, unlike the other UK bank shares we have looked at so far, HSBC shares actually recovered fairly quickly, largely thanks to its operations in China. Although in the decade or so leading up to the outbreak of the coronavirus pandemic, the HSBC share price has been very volatile, falling sharply and recovering on two occasions.

Depicted: Admirals MetaTrader 5 – HSBC Holdings PLC Daily Chart. Date Range: 6 March 2019 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

Looking at the development of the HSBC share price over the last couple of years, we note that, unlike the other UK bank shares we have looked at thus far, the decline caused by Covid-19 was more drawn out. HSBC shares spent the majority of 2020 in a downward trend, reaching a ten year low of 281.35 GBX in September 2020, after which price began to recover. Although since March 2021, the price has been stuck in a sideways movement.

In their 2021 Q1 results, HSBC reported a 5% fall in revenue when compared with the same quarter last year. However, post-tax profit increased 82% to $4,568m.

As tensions between China and the West increase, the future of HSBC is somewhat uncertain. As well as being caught in the middle of these tensions, HSBC has also been the centre of various scandals in recent years, which may be enough to ward off those investors who are governed by ESG principles.

These scandals have included allegations of facilitating money laundering for criminal enterprises, including Mexican drug cartels. For this particular allegation, they were fined $1.9 billion in 2012 for violating US law.

NatWest Shares

For one brief moment the largest bank in the world, NatWest was hit particularly hard by the financial crisis of 2007/8, recording the biggest corporate losses in British history for 2008 - a total loss of £24.1 billion.

These huge losses led to the UK government acquiring a 70% stake in the bank. As of 20 July 2021, HM Treasury still held 54.8% of outstanding NatWest shares.

Depicted: TradingView – NatWest Group PLC Monthly Chart. Date Range: 1 October 1997 – 19 July 2021. Date Captured: 19 July 2021. Past performance is not a reliable indicator of future results.

For the last decade, NatWest has continued to struggle with legacy issues from the financial crisis, strongly emphasised by HM Treasury’s majority stake in the group. Since the collapse of its share price, it has not seen a significant recovery.

Depicted: TradingView – NatWest Group PLC Daily Chart. Date Range: 11 February 2019 – 19 July 2021. Date Captured: 19 July 2021. Past performance is not a reliable indicator of future results.

As with other UK bank shares, NatWest shares were hit hard by the pandemic in March 2020. However, since October of the same year, the share price has been on an upward trend, although it is yet to recover its pre-pandemic levels.

NatWest’s revenue fell almost 16% in their Q1 2021 results compared with the same period last year, a far greater fall than the other banks which we have looked at in this article. However, profit before tax increased 82% to £942m.

The Problems Facing UK Bank Shares

Aside from the obvious issues facing UK businesses, post-pandemic recovery and the long-term effect of Brexit on the economy, there are two other problems facing the future of UK bank shares at present – low interest rates and new competition.

Since the financial crisis in 2008, interest rates have remained at record lows across the world and the UK is no exception. Whilst low rates mean that banks pay out less interest to customers who hold deposits with them, it also means that they earn considerably less income from loan repayments.

Furthermore, new challenger banks such as Starling, Monzo and Revolut have emerged over the last decade and their exclusively internet and app-based presence combined with lower fees has attracted an increasing amount of UK retail banking customers, particularly amongst the younger generations. As consumer preferences shift away from requiring a physical high street presence, it is possible that challenger banks could begin to take a more significant part out of the retail bank market in the UK.

Added to all this, regulation implemented after the financial crisis raised costs and made it more difficult for banks to make money from some of their traditional activities, such as investment banking.

Weighing against these problems, an economic performance by the UK that proves to be better than expected by the markets, will have an upwards effect on UK bank shares.

Investing in UK Bank Shares With Admirals

With an Invest.MT5 account from Admirals, you can invest in Lloyds Bank shares, HSBC shares, Barclays shares and over 4,300 other shares from 15 of the world’s largest stock exchanges!

In order to invest in UK bank shares with Admirals, follow these steps:

  1. Open an Invest.MT5 account
  2. Download the MetaTrader 5 trading platform
  3. Open MetaTrader 5 and log in with your investing account details
  4. Press Control + U to bring up the Symbols window, shown below. Here search for the UK bank shares you want to invest in and click ‘Show Symbol’

Depicted: Admirals MetaTrader 5 – Symbols

  1. Head to the Market Watch tab on the left hand side of the screen, locate the symbol you added in the previous step, right click on it and select ‘Chart Window’ to open a price chart
  2. Press the ‘New Order’ button at the top of the screen in order to bring up the order window, where you can select the amount of UK bank shares you wish to purchase, as well as set a take profit and stop loss if desired.

Depicted: Admirals MetaTrader 5 – Lloyds Bank Weekly Chart – New Order. Date Range: 10 January 2010 – 16 July 2021. Date Captured: 16 July 2021. Past performance is not a reliable indicator of future results.

Invest in UK Bank Shares with Admirals

As well as UK bank shares, investors who choose Admirals can buy over 4,300 individual shares and over 300 Exchange-Traded Funds (ETFs) from 15 of the largest stock exchanges in the world! Other benefits of the Invest.MT5 account include:

  • The ability to open an account with a minimum deposit of just €1
  • Free use of the world’s number one multi-asset trading platform, MetaTrader 5
  • Exclusive access to our Premium Analytics portal, where you can find the latest market news, sentiment and technical insight and no additional cost!

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Roberto Rivero
Roberto Rivero Financial Writer, Admirals, London

Roberto spent 11 years designing trading and decision-making systems for traders and fund managers and a further 13 years at S&P, working with professional investors. He has a BSc in Economics and an MBA and has been an active investor since the mid-1990s