It’s been another choppy week for UK bank shareholders, including me. Bank shares turned volatile again, following the collapse of three US banks and one Swiss business.
Four banking ‘dominoes’ fall
Two weeks ago, mid-sized tech-focused Silicon Valley Bank, Signature Bank and Silvergate Bank failed. Last weekend, the Swiss government organised an emergency rescue of Credit Suisse, the country’s second-largest bank.
After two weekends of such firms toppling like dominoes, renewed selling pressure bashed bank stocks on Friday. Clearly, some investors won’t take any chances with further banking contagion — not even over a weekend.
Down go bank shares
Here’s how the Big Four’s share prices whipsawed on Friday:
| Bank | Low | High | Close | Change |
| Barclays | 130.06p | 137.74p | 133.90p | -4.2% |
| HSBC | 521.90p | 545.40p | 534.00p | -2.6% |
| Lloyds | 44.90p | 46.59p | 45.72p | -2.4% |
| NatWest | 251.50p | 266.70p | 258.50p | -3.6% |
Barclays was Friday’s worst performer, tumbling 7% in the morning before rebounding. NatWest Group was the second-worst stock, nearing 250p at its low.
When investors panic
As an investor since 1986, I’ve survived four major stock-market crashes. These were Black Monday (19 October 1987), the 2000-03 dotcom bust, the 2007-09 global financial crisis (GFC), and the spring 2020 pandemic panic.
Having started writing for this website in January 2003, I reported the previous three market meltdowns for Fool readers. In 2003, I was incredibly positive, buying UK stocks at low prices to ride the 2003-07 bull market.
However, as the GFC brewed, I repeatedly warned of growing systemic risks in banking. Hence, I sold all but a tiny fraction of my financial stocks in 2007, walking away before the global banking crisis exploded.
Should I be worried?
Based on my 37 years of experience, I’m not worried about the liquidity, solvency or solidity of any of the Big Four banks. To me, this latest crisis feels nowhere near as terrifying as the sheer carnage of 2008.
Since the GFC, UK banks have strengthened beyond almost all recognition. Today, they have much greater liquid capital to hand and carry far less risk on their balance sheets. Also, all four were strongly profitable in 2022 — unlike Credit Suisse, which lost huge sums in 2021 and 2022.
Which stocks would I buy today?
As I believe that UK banks will bounce back, which of them would I buy now? Here are their fundamentals:
| Bank | Barclays | HSBC | Lloyds | NatWest |
| One-year change | -20.0% | +2.6% | -7.4% | +8.2% |
| Five-year price change | -36.1% | -20.2% | -31.9% | -8.6% |
| Market value | £22.5bn | £112.3bn | £31.9bn | £25.9bn |
| Price-to-earnings ratio | 4.8 | 9.3 | 6.6 | 7.4 |
| Earnings yield | 20.9% | 10.8% | 15.1% | 13.5% |
| Dividend yield | 5.2% | 5.0% | 5.1% | 5.1% |
| Dividend cover | 4.0 | 2.2 | 2.9 | 2.6 |
These price declines exclude cash dividends, which are a key component of long-term returns.
What draws me to these stocks is they all offer dividend yields of 5%+ a year. That’s about a quarter higher than the FTSE 100‘s yearly cash yield of roughly 4%. In addition, these cash payouts are covered between 2.2 and four times by historic earnings.
Of course, bank profits and earnings are likely to be lower this year than in 2022. Also, a recession might lift bad debts and loan losses, thus hitting banks’ profits.
Even so, I’d actually buy all four bank shares today — if I had any spare cash, that is!
