Lloyds vs Barclays: Which is a better Bank stock buy?

By:
on Dec 9, 2022
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  • Lloyds and Barclays are some of the biggest banks in the FTSE 100.
  • Barclays has outperformed Lloyds Bank this year.
  • Lloyds has a big exposure to the struggling UK economy.

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Lloyds (LON: LLOY) and Barclays (LON: BARC) share prices have had a difficult year despite soaring interest rates. Barclays dropped by 20% while Lloyds slipped by over 30%. This is a major decline considering that the Vanguard Bank ETF (KBE) and the FTSE 100 have slipped by less than 1%.

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Lloyds vs Barclays vs KBE

Lloyds and Barclays face challenges

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Barclays and Lloyds Bank have an important role in the British economy. Lloyds, which has over 26 million customers, is the biggest mortgage lender. On the other hand, Barclays dominates the card business. 

The two banks have different operating strategies. Lloyds is primarily a domestic retail banking organization while Barclays has operations in several countries, including the United States. In addition, Barclays is one of the biggest players in investment banking. 

Lloyds share price has underperformed Barclays in 2022 because of the rising recession in the country. In the most recent quarter, the company set aside 668 million pounds to cover provisions for bad debt. In contrast, Barclays set aside less than 400 million pounds in charges. 

This happened because Lloyds is often seen as a barometer for the UK economy. Analysts expect that the country will remain in a recession for a while. Most importantly, Lloyds Bank has a big stake in the struggling UK real estate sector. Data published by Halifax showed that house prices dropped by more than 10% in November. 

On the other hand, Barclays Bank has been hit by the collapse of deal-making. Data published by WSJ shows that deal-making has collapsed to the lowest level in years amid rising interest rates and regulatory concerns. 

Lloyds Bank vs Barclays as an investment

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In my view, I believe that Barclays is a better investment than Lloyds because of its diversification. For Lloyds, major challenge is that it is too much reliance on the UK. While Barclays has exposure to the UK, its diversified business model means that its trading business will help to offset its losses. 

Its stronger performance explains why Barclays has a lower dividend yield than Lloyds. Barclays has a forward yield of 2.68% compared to Lloyds yield of 3.34%. Barclays also has a relatively cheaper valuation metrics than Lloyds. It has a forward PE ratio of 3.99% while Lloyds has a PE multiple of 6.20. Barclays has a price-to-book ratio of 0.40 compared to Lloyds 0.96.

Therefore, I believe that Barclays will continue doing well in 2023 than Lloyds. Further, Lloyds has a strong exposure to the UK pension sector. In fact, it sold billions worth of pension schemes during the mini-budget sell-off. 

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