The so-called ‘Big Four’ banks – HSBC, Royal Bank of Scotland (RBS), Lloyds Banking Group and Barclays – have now released their latest annual results.
Now we know how they fared, do any of them stand out as bargains for investors? Let's crunch the numbers to find out.
1. Top-line growth
Are any of the banks growing their top-line total income in this post-crash age? The following table is sorted from highest to lowest growth.
|
Bank |
Growth rate in 2014 |
|
HSBC |
0.2% |
|
Lloyds |
-2.3% |
|
RBS |
-6.4% |
|
Barclays |
-7.8% |
Source: Banks' final results for 2014
As you can see, banks still struggle to expand their revenues in this global environment of slow growth. Indeed, HSBC was the only member of the Big Four to actually increase its revenues from 2013 to 2014.
2. Earnings growth
Now let's check growth in earnings per share (EPS) in 2014. The following table is sorted from highest to lowest growth in underlying/adjusted EPS.
|
Bank |
Earnings growth in 2014 |
|
Lloyds |
22.7% |
|
Barclays |
13.1% |
|
HSBC |
-17.9% |
|
RBS |
N/A* |
Source: Banks' final results for 2014
*Basic EPS at RBS moved from a loss of 85p in 2013 to a gain of 0.5p in 2014.
Lloyds and Barclays both reported double-digit growth, perhaps indicating that they have finally put various legacy issues behind them. However, HSBC's EPS plunged by more than a sixth, partly due to fairly hefty fines and settlements for past misdeeds.
However, the winner in terms of EPS growth is actually RBS, which has gone from a loss per share of 85p in 2013 to a tiny EPS of 0.5p in 2014.
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3. Dividends
Now let’s look at dividend yield, cover and growth at the Big Four.
|
Bank |
Forward dividend yield |
Dividend Cover |
2014 dividend growth |
|
HSBC |
5.9% |
1.6 |
2.0% |
|
Barclays |
3.6% |
2.7 |
0.0% |
|
Lloyds |
3.6% |
2.8 |
N/A* |
|
RBS |
0.5% |
16.2 |
N/A* |
Source: DigitalLook.com
*Lloyds and RBS have not paid any dividends since before their bailouts by taxpayers in 2008
[SPOTLIGHT]In terms of bank dividends, HSBC's is the clear winner, with a whopping dividend yield of 5.9%, expected to rise to 6.3% in 2016. However, dividend cover (the ratio of net income to dividend paid) is a weak 1.6 times. Also, this payout is declared in dollars, so its sterling value will vary from year to year.
Barclays has a forward dividend yield of 3.6%, broadly in line with the FTSE 100 index as a whole. However, while Barclays' yearly payout has been flat since 2012 at 6.5p per share, it is expected to grow by nearly 44% in 2015 and almost 29% in 2016. Also, the current dividend is covered a healthy 2.7 times.
In its latest results, Lloyds revealed that it intends to resume dividends for the first time in six years. This cash payout is a modest 0.75p per share, so Lloyds is a long way from being a core holding for income investors.
Lastly, RBS has also not paid a dividend since 2008. However, by cutting bonuses and shedding riskier assets, the bank hopes to seek regulatory approval to resume these shareholder payouts next year.
4. Price-earnings ratio
Dividing a share price by earnings per share gives the price-earnings ratio (PER), a measure of how relatively expensive a company's shares are.
|
Bank |
Forward PER |
|
Barclays |
9.8 |
|
Lloyds |
9.9 |
|
HSBC |
10.4 |
|
RBS |
12.2 |
Source: DigitalLook.com
In terms of PERs, Barclays and Lloyds share this top slot, as there is little to separate them.
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5. Price-revenue ratio
Another way to look at the relative costliness of a company is to divide its share price by revenue per share to give the price-revenue ratio (PVR).
|
Bank |
Forward PVR |
|
RBS |
1.4 |
|
Barclays |
1.7 |
|
HSBC |
2.7 |
|
Lloyds |
3.1 |
Source: DigitalLook.com
In terms of PVR, RBS is the cheapest share, trading on a price-revenue ratio of a mere 1.4. However, RBS still has plenty of impaired assets to dispose of, so this low ratio could be a reflection of how poorly investors rate its current asset quality.
6. Capital strength
A bank's 'core Tier One capital ratio' is a measure of how well it can weather future financial storms. The higher the ratio, the stronger a bank's liquidity and balance sheet.
|
Bank |
Tier One capital ratio |
|
Lloyds |
12.8% |
|
Barclays |
11.5% |
|
RBS |
11.2% |
|
HSBC |
10.9% |
Source: Banks' final results for 2014
Lloyds emerges the victor. At the other end of the scale, HSBC's ratio is 10.9%, which suggests that the Asia-focused bank could do with a bit more excess capital.
7. What the analysts say
Lastly, let's find out what market analysts think of the Big Four banks, in terms of their sell/hold/buy recommendations. Here are the latest broker ratings.
|
Bank (Total ratings) |
Strong Buy |
Buy |
Hold |
Sell |
Strong Sell |
Consensus |
|
Barclays (25) |
17 |
3 |
5 |
0 |
0 |
Strong Buy |
|
Lloyds (24) |
14 |
1 |
6 |
0 |
3 |
Strong Buy |
|
HSBC (28) |
7 |
3 |
11 |
1 |
6 |
Buy |
|
RBS (25) |
1 |
2 |
13 |
1 |
8 |
Hold/Sell |
Source: DigitalLook.com
You should always take broker ratings with a hefty pinch of salt, since market analysts rarely assign 'sell' ratings to companies, for fear of losing lucrative corporate contracts from offended firms.
That said, Barclays is the brokers' darling by far, with 17 'strong buys' out of 25 ratings.
Four horses, four courses
The Big Four offer very different shares to suit a wide variety of investors.
For example, HSBC offers income-seeking investors the prospect of high yields and 'boring', reliable growth. For those looking to future growth at a reasonable price, Barclays is worth a look. For its powerful financial strength, Lloyds is a solid bet. Lastly, for risk-seeking investors, RBS might be a pure recovery play.
And if you are tempted, brace yourself for more fines, penalties and regulatory payouts to come in the short term.
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