Today (21 February), Standard Chartered was the last of the FTSE 100’s five banks to reports its results for the year ended 31 December 2024.
Having the same year-end makes it easier to compare their valuations. With this in mind, I’ve used three popular tools to try and identify which is the cheapest.
1. Earnings
Based on their price-to-earnings (P/E) ratios, NatWest Group just pips Barclays (LSE:BARC) to the top.
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However, two of the others are not that far behind.
| Bank | P/E ratio |
|---|---|
| NatWest Group | 8.48 |
| Barclays | 8.49 |
| Standard Chartered | 8.92 |
| HSBC | 9.04 |
| Lloyds Banking Group | 10.53 |
The outlier here appears to be Lloyds Banking Group. Its recent share price rally — and slightly disappointing earnings for 2024 — means its P/E ratio is now over 10. Most European banks trade at a multiple of between seven and nine.
2. Balance sheets
Using the price-to-book (P/B) ratio, HSBC appears to be the most expensive.
In contrast, Barclays’ is much lower than the others. It implies that if the bank ceased trading today, sold all its assets, and used the proceeds to settle its liabilities, there’d be 515p a share left over to return to shareholders. That’s a 68% premium to the current share price.
| Bank | P/B ratio |
|---|---|
| Barclays | 0.59 |
| Standard Chartered | 0.68 |
| Lloyds Banking Group | 0.87 |
| NatWest Group | 0.89 |
| HSBC | 1.03 |
According to McKinsey & Company, the average for 1,500 listed banks is 0.9. In fact, the management consultancy claims this is the lowest of all industries.
Some of this is explained by regulators requiring banks to hold more capital as a result of the 2007-2009 financial crisis. But it also suggests that investors are wary of putting their cash into the sector.
The earnings of banks can be volatile, as they’re often barometers for the wider economy. They’re also vulnerable to loan defaults. As Simon Edelsten recently wrote in the Financial Times: “Owning bank shares is like picking up pound coins in front of a steamroller – fun until you are flattened.”
3. Dividends
Many investors hold banking stocks in their portfolios due to the generous income on offer. However, based on their 2024 dividends, only three of the five pay more than the FTSE 100 average (3.6%). Of course, returns to shareholders are never guaranteed.
HSBC performs the best here. And the yield of 5.89% excludes the special dividend that was paid following the sale of its business in Canada.
| Bank | Dividend yield (%) |
|---|---|
| HSBC | 5.89 |
| Lloyds Banking Group | 4.78 |
| NatWest Group | 4.74 |
| Barclays | 2.75 |
| Standard Chartered | 2.47 |
4. My verdict
Based on a combination of all three measures, it looks to me as though Barclays comes top. It has the lowest P/B ratio and second-lowest P/E ratio. Okay, its dividend isn’t great but it does well enough in the other two categories to more than compensate for its less-than-generous payout. Having said that, compared to 2023, its dividend is now 5% higher.
Being honest, this result pleases me. That’s because I already own shares in the bank. I feel it vindicates my decision to buy last year, especially given that the share price has risen 87% since February 2024.
Its 2024 results showed a 24% increase in pre-tax earnings. And it’s less affected by the ongoing investigation into the alleged mis-selling of car finance. It says it’s on course to achieve its target of a return on tangible equity of “greater than 12%” by 2026 (2024: 10.5%).
For these reasons, I think Barclays is the FTSE 100’s cheapest bank and one that investors could consider holding for the long term.
