Image source: Getty Images
I was satisfied with last year's purchase of Lloyds Banking Group (LSE: LLOY) but then I looked at the Barclays (LSE: BARC) share price and I couldn't help but feel a pang of regret. OMG, it's well done.
My Lloyds shares have just fallen 12.92% in a week as the car finance mis-selling scandal appears to be in danger of spiraling out of control. They are still up 34.03% over the year, but that is nothing for Barclays.
Barclays shares have soared 85.29% over the last year and, with no worries over funding engines, are up 7.82% in what has been a choppy month for the FTSE 100. Has it been everything too far?
Maybe I shouldn't have bought Lloyds shares!
I always knew Barclays had faster growth potential than Lloyds, as it held on to its investment banking arm after the financial crisis. It also has a thriving credit card business in the United States.
That gives it more polish, something Lloyds lacks as it sticks to the nuts and bolts of UK personal and small business banking.
Which would be fine if management wasn't constantly confused by mis-selling. Lloyds was also hardest hit by the PPI. I don't expect engine financing to cost him another £23bn, but he should know better by now.
Barclays has also had regulatory problems, typically in the United States. On October 1, it agreed to pay $4 million for violating the U.S. Commodity Futures Trading Commission's (CFTC) rules on reporting swap transactions.
That's a fraction of its $361 million deal to settle U.S. Securities and Exchange Commission charges over securities overissues in 2022. Given tough U.S. regulators, there will be more of these, but Barclays ignores them better than Lloyds.
Barclays is making a lot of money. On October 24, it reported an 18% rise in third-quarter pre-tax profits to £2.2 billion. That beat forecasts by £2bn, helped by higher revenues and lower impairments.
This FTSE 100 bank is gaining ground
Investment banking fees are finally starting to rise, while trading activity in the equity and debt markets is also increasing.
Lloyds has a higher residual yield of 5.16%, although boosted by the recent drop in the share price. That easily beats Barclays at 3.38%. However, markets estimate that Barclays has cash for £10bn in distributions between now and 2026, earmarked for share buybacks.
Both Lloyds and Barclays may be affected when interest rates start to fall (assuming they do). This will reduce net interest margins, the difference between what banks pay savers and what they charge borrowers. On the other hand, lower interest rates can revive mortgage lending.
With its exposure to the United States, Barclays could be hurt if the US Federal Reserve fails to achieve a soft landing, or if the presidential election brings unknown terrors. However, despite its excellent run, the stock still looks like a great value with a P/E ratio of 8.74. That's only slightly more expensive than Lloyds, at 7.06% times.
Barclays has not jumped the shark. There is nothing crazy about its dizzying performance and I will buy its shares in November. Better late than never. As for Lloyds, I'll put up with it. It still seems like a solid long-term buy and hold to me.
