Filed Under:
Tickers in this Article: HBC, LYG, BCS
When it comes to banking, there are no borders. British banks have been around for years and have taken full advantage of our global banking environment.

Investing in banks is typically a long-term proposition, particularly with banks of large size with international operations. Read on as we look at three of the U.K.'s biggest and brightest banks.

Large, But Nimble
HSBC Holdings (NYSE:HBC) defines the concept of "global banking". Formed in 1865, HSBC has about 10,000 offices in 83 countries, serving 125 million retail clients and 2.5 million business clients. This adds up to $1.1 trillion in deposits. Despite its size, HBC is fast to recognize and address any situation. For example, when the subprime lending fiasco hit, HBC quickly acknowledged the problem and tightened underwriting standards.

For corporate clients doing business in China, HSBC is probably the bank of choice. Not only does HBC have its roots in Hong Kong, but the bank owns major stakes in two other banks in China, too. HSBC also knows where it can compete most effectively with its various financial services in corporate and investment banking, personal services or private banking and wealth management.

Over the past five years, HSBC has shown an average growth rate in revenue of more than 33% and an earnings growth rate of just over 19% for that same period.

Results in the past year have been less impressive, due in large part to the subprime lending meltdown. Still, HBC manages a return on assets of 1.0%, which is terrific for a bank this size, and a return on equity (ROE) of 16.8%. (For all you need to know about the subprime meltdown, check out our Subprime Mortgages Feature.)

World Class Size with a Domestic Focus
Lloyds TSB Group (NYSE:LYG) retains a very domestic focus, perhaps too domestic. Half of Lloyds' loan portfolio is in domestic real estate. Any kind of downturn in the British real estate market could hurt Lloyds . So far, so good - bu the danger remains. Overall, the company has been producing high returns and dividends by providing traditional banking services along with insurance through it's subsidiary Scottish Widows.

Lloyds enjoys a 22% market share in the U.K. as far as retail banking is concerned and works very hard to retain its regular customers, which so far has proved a successful strategy. The bank is also working to develop corporate banking as the retail lending portfolio is showing signs of weakness with slowing growth and increasing charge offs.

Lloyds' fundamental strategy is to continue the status quo, eschewing what it considers "ill-conceived" expansion. The bank pays out roughly 75% of its earnings in dividends, which is great for income-oriented investors but does little to foster any acquisition plans. Bottom line, Lloyds has a 0.90% return on assets and 27.2% ROE. Overall, Lloyds is well run, albeit conservative, bank. (To learn more, read Understanding The Subtleties Of ROA Vs. ROE.)

New Upscale Focus
Unlike Lloyds, Barclays (NYSE:BCS) is moving away from retail, with the exception of wealth management, and is moving more toward becoming an investment bank. Barclays is now one of the world's largest investment managers, with more than $1.8 trillion under management.

The Barclays Capital segment accounted for 31% of the company's profit last year, while the International Retail and Commercial Banking segment contributed 18% and Barclays Global Investors chimed in for about 10%. The new management team wants to focus on the investment banking portion and the wealth management segment, both of which are seeing solid growth.

Barclays' recent bid to acquire rival bank ABN Amro looks debatable, as there are no obvious synergies to speak of. From ABN's perspective, the counter offer from a group lead by the Royal Bank of Scotland looks like a better deal operationally as well as monetarily. One thing the bid does do, however, is make it clear that Barclays wants to be an international, banking player.

A Bank for Every Investing Style
If you are a would-be investor, which of these three choices suits you best? HSBC has done well and appreciated about 60% over the past five years, but it has substantial risk to the Far East. On the other hand, Lloyds remains a conservatively run, domestic bank that plans to stay that way, and it has risen roughly 40% these last five years. Finally, the most aggressive of these banks, Barclays, wants to be a top-tier player, and it has appreciated 90% over the prior five years. All of these banks will likely produce reasonable returns going forward - the big decision lies in picking the bank that best matches your investment style and risk preferences.

For related reading, check out Personalizing Risk Tolerance.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

comments powered by Disqus

Trading Center