Investment Insider: Market may have misread Barclays' ability to recover

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The Independent Online

Perhaps the most telling sign that UK banks are unwanted is that four of the UK's five main quoted banks are trading below their book (or net asset) values.

Barclays shares are trading at around a third of book value, implying that they are ostensibly cheap. Royal Bank of Scotland is even cheaper at almost a fifth of its book value while Lloyds Banking Group is priced at around half its book value.

Standard Chartered, which has judiciously side-stepped the European debt shenanigans, is trading at a premium to its book value while HSBC's price is a smidgen below its net asset value.

Price to earnings is another useful ratio to look at because it is said that banks generally increase their attractiveness when investors pay less than ten times profits (price to earnings) for their shares. At the moment, Lloyds, RBS and HSBC are all valued at eight times forward earnings. Barclays is valued at just five times prospective profits while Standard Chartered is the most expensive at ten times forward earnings.

HSBC and Barclays' prospective dividend yields of around 5 per cent are tempting, as is Standard Chartered's 4 per cent. However, both Lloyds and RBS are not expected to resume dividend payouts yet to ordinary shareholders.

Standard Chartered stands out as the most obvious play on continued Asian growth while Lloyds is likely to have the biggest market share in the UK even after disposing of branches it acquired after buying HBOS.

But value seekers may want to take a closer look at Barclays. Shares are cheap due to the ongoing inquiry into manipulation of inter-bank borrowing rates. But the market may be overly pessimistic about the outcome.

David Kuo is director of

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