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Above FTSE 100 banking actions including barclays (LSE:BARC) and HSBC they have lost about 10% of their value since March 9. It was on the cards after the high-profile bankruptcy of the US-based Silicon Valley Bank. This was not the only bank to go into decline recently, as silver door Capital and Signature Bank They have also joined the party. It may not be the last. Bank of the First Republic it was similarly floundering until it was bailed out by a group of larger banks.
Encouragingly, I don’t think this is a systemic catastrophe in waiting like the last few financial crises. Central banks are moving quickly and the risk of market contagion for UK lenders is low. I certainly do not foresee a run on major banks that was commonplace during the 2008/09 financial crisis.
So perhaps the panic around the global banking sector over the last week has given me an attractive entry point.
Attractive FTSE 100 banks
As Warren Buffett once said: “we just try to be afraid when others are greedy and to be greedy when others are afraid.” I would like to invoke this approach within the UK banking sector.
Unlike their US counterparts, UK banks are not as exposed to risk-weighted assets. Therefore, the probability of a liquidity crisis resulting from a bank run is small.
I find Barclays the most attractive stock due to its higher discount relative to its peers. The underperformance of its shares throughout 2022 has made its valuation look like a bargain. The shares are the cheapest of the lot (a P/E of 5 vs. the FTSE 100 P/E of 14). In fact, it is one of the cheapest blue chip bank stocks listed on the London Stock Exchange.
On the other hand, the sensitivity of bonds to interest rate hikes is what has led these US banks into deep water. Recent events could well make central bankers reconsider further rate hikes. This is not the best news for banks. I will certainly be watching for the Bank of England’s MPC interest rate decision later this week.
In addition, Barclays’ international banking exposure poses a risk, relative to a more national operator such as Lloyds Banking Group. In this sense, I can understand why some investors dumped the stock. But in my opinion, this sale was exaggerated.
Too big to fail?
The fact of the matter is that safe haven banks are often considered by regulators to be too big to fail. Silicon Valley Bank was too big to fail, Credit Suisse was too big to fail. And guess what, they’ve both been rescued.
In this sense, institutions like Barclays, Lloyds and HSBC are too big to fail. I like Barclays better because it is the cheapest of all, and one of the most oversold after the market panic.
This mini banking crisis reminded me how safe systemically important banking institutions remain. A stock like Barclays is a solid long-term option for a defensive portfolio like mine.
The next few weeks will be critical in determining sentiment towards the global banking sector. A lot can still change, and sentiment could deteriorate further. Barclays shares could get even cheaper; I am aware that stocks have gone up recently.
I’ll keep my gunpowder dry in hopes that the discount opportunity widens in the stock. If so, I’ll risk being greedy with some Barclays shares.
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