Britain’s high street banks are not the best option for growing your wealth, with low savings rates and limited rate increases. However, there is an alternative way to benefit from banks – by investing as a shareholder.
Dividends paid by banks increased by 61% in the second quarter of 2023, totaling £7.8 billion. Major banks such as Lloyds, HSBC, Barclays, and NatWest have also reported significant profits, partly due to their reluctance to pass on interest rate increases to savers. As a result, these banks often offer shareholders better returns than savers.
Investing in high street banks does come with risks, as shares can quickly decline if the economy weakens or the bank faces criticism. Therefore, thorough research is necessary before considering investment opportunities. This article provides insights into three major banks: Lloyds, Barclays, and NatWest.
Lloyds Banking Group, despite reporting a 23% increase in profits, saw its shares fall due to lower-than-expected profits and concerns about potential mortgage defaults. However, Lloyds is considered the most stable among British banks as it does not have an investment banking arm, which can result in more significant profit fluctuations. Lloyds shares currently yield around 6% and have declined by 30% over the past five years.
Barclays, with a 22% increase in profits, faced a similar fate as its shares fell due to higher provisions for customer defaults and concerns about the net interest margin. While savers prefer a lower net interest margin, shareholders benefit from a higher margin. Barclays shares are down 14% this year and currently yield around 5%.
NatWest’s half-year figures were overshadowed by the controversy surrounding the closure of Nigel Farage’s account. The bank’s shares declined by 9% this year, and it lowered its net interest margin guidance. However, higher-than-expected profits, a dividend of 5.5p per share, and a share buyback program have boosted shareholder confidence. NatWest shares now yield nearly 8%.
HSBC, as a global bank with a strong focus on Asia, reported profits of £16.9 billion for the first half of 2023, attracting investors and leading to a 20% increase in its share price. The bank also plans to pay dividends and buy back shares. HSBC shares yield 5% and have performed stronger than other British banks.
Investors who prefer a fund can consider options like Man GLG Income, which includes Barclays and HSBC among its top ten holdings, or GAM Star Credit Opportunities, which invests in the bonds of banks including HSBC, NatWest, and Barclays. For a more affordable choice, an index-tracking fund like the iShares Core FTSE 100 ETF, which includes all major high street banks, can be ideal.
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