British Bank ADRs – A Bargain?

There was an article in the “This is Money” site on May 8th about British bank stocks. The article basically suggested that maybe its time to cherry pick some of these battered
banks.Experts seem to believe that the worst of the credit crunch is finally over and that good times are ahead for British banks.

In the article,Guy de Blonay, a financial expert, and manager of the New Star Financials fund said “I would be surprised, given the information we have now, if financial stocks were not higher in 12 months time.”

As per the article, the market consensus on the following three banks are “Hold”.
1. Llyods Bank
2. Barclays

Standard Chartered
is a “Cautious Buy”.

The article puts HBOS and Royal Bank of Scotland,Allicane & Leicester in the weaker banks category and a “Weak Hold” rating on them.


ADR Impact:LYG, BCS, HBC, HBOOY and RBS trade as ADRs in the US.

Allicane & Leicester and Standard Chartered are not available as ADRs.

The following table lists some of the key financial ratios on these British Banks :

Lloyds bank does not have heavy US exposure and investments like HBC.So we would argue that it is a buy at these levels considering the excellent dividend yields.

Barclays has been hit pretty bad in recent months due to the failed attempt to acquire ABN Amro of Holland. Still BCS is a good buy for the long-term.It is a truly global bank with branches in many countries.

HBC may have some more losses and may find the going tough due to its acquisition of Household International a few years bank which lends heavily to high risk borrowers.If the economy worsens then HBC could face more problems.

HBOOY is a buy since it is mostly a UK-focussed mortgage lender.The share price is < $10 in the US. If you believe that the UK housing market is different than the US and
that the UK housing may not plunge as in the US, then HBOOY is a definite buy at these levels. The stock got split a year or two ago as the company rode the housing boom in the UK.

RBS was listed on the NYSE recently.This is a definite buy at these levels since the bank has an awesome yield and has been in business for over 100+ years operating
with a traditional Scottish management principles. Also recently the bank undertook a major re-capitalization program to shore up its bruised but not broken balance sheet.

Is it time to buy bank shares?

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