Dear Mr. Berko: Most American banks have recovered from the Great Recession. But banks in the United Kingdom have not. I have $30,000 to invest, and I'd thank you for a recommendation of three British banks for my individual retirement account. — LB, Ann Arbor, Mich.
Dear LB: A few hours in a flying machine will take you across the pond to the United Kingdom, home of MI6, Shakespeare and his brothers, Dick, Bill and Gil, plus the following three banks.
Lloyds Banking Group (LYG-$2.81), a $17 billion-revenue bank with 75,000 employees, has been conducting business with Londoners and people of the world since 1695. In the early part of this century, LYG traded in the mid-$40s. The Great Recession tanked this prestigious name to a shamming price of $2.50. LYG is the fourth-largest bank in the U.K. and pays a seemingly well-covered 16-cent dividend, yielding 5.8 percent. Since early 2015, Lloyds has notably restructured itself. This includes a reduced reliance on wholesale funding, a new focus on retail and commercial business models, and nearly 100 percent growth in its credit card business via its keen 2017 acquisition of MBNA. Some believe that LYG is positioned to meet the challenges Brexit poses to its operating theater. They surmise Lloyds could be a winning speculation by 2021 and believe that the risks are diminished by a potential share price of $15. And some Britons think that Brexit fears are overblown. So buy 3,000 shares and earn a splendid dividend, which could increase over the coming years, while waiting for principal growth. Be that as it may, I can't find an American brokerage that has a "buy" recommendation on LYG. Nevertheless, a 3,500-share speculation augurs well from this side of the pond.
Barclays (BCS-$8.22), with $20 billion in revenues and 90,000 employees, is the second-largest bank in London Town. In mid-2008, just before the recession whacked the world's financial markets, BCS tranquilly traded in the mid-$50s. It savagely tumbled to $5 a share in 2009. This 122-year-old bank went through several difficult years of restructuring, which included settling with the U.S. Department of Justice over its residential mortgage-backed securities business. In 2017, BCS posted earnings of 30 cents a share, and this year, BCS expects to earn $1.08 — on a trifling increase in revenues. Management expects 3.2 percent revenue growth and earnings of $1.25 to $1.28 next year. Meanwhile, the covetous 26-cent dividend, yielding 3.1 percent, may be raised in 2019. A few BCS-watchers presume the board will increase its dividend in each of the next two years. Though Brexit head winds may cause a slowdown in the British economy, BCS' well-diversified business — locally and geographically — should buffer those winds. The shares trade at half their $18.10 book value, and a projected share price increase to the high $20s by 2021 is realistic. Standard & Poor's, Morningstar and Jefferies have "buy" ratings on BCS. A 1,200-share long-term speculation could be promising in several years.
The Royal Bank of Scotland (RBS-$5.44) is the oldest of the three. RBS, founded in 1727, has its command post in Edinburgh. In June 2007, Royal's CEO, Sir Fred Goodwin, had RBS execute its thrilling purchase of the Dutch banking giant ABN AMRO, paying $120 billion to elated Dutch shareholders. That October, RBS traded at $220 a share. Then, in February 2009, RBS reported the largest loss in British corporate history. Just months later, RBS shares ruptured to $3.50, and the British government took a 70 percent equity position, preventing the bank's disintegration and containing its colossal collateral damage. This $13 billion-revenue bank earned 16 cents a share last year and expects 64 cents this year. RBS trades at a 40 percent discount to book value, and the nickel dividend yields 0.9 percent. Investors doubt Brexit will hurt RBS and are looking for the shares to trade in the mid-$10s by 2021. I'm pleased that Thomson Reuters, Market Edge and 14 other analysts have "buy" ratings on RBS. So I'm comfortable with a 1,800-share purchase as an attractive long-term speculation.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.