The banking crisis has triggered a sell-off in the sector. With share prices down sharply, I’m thinking about buying some bank shares for my Stocks and Shares ISA before the 5 April deadline.
Of course, investing in shares while the situation remains uncertain carries some extra risk. Things could get worse and problems could spread.
Although I think the combination of issues that affected Silicon Valley Bank — owned by SVB Financial — are unlikely to affect UK-regulated banks, I can’t be sure that nothing else will go wrong.
However, there have been no reports of problems at any UK banks, so far. On balance, I’m happy to consider investing if I can find a good opportunity.
What banks are on my radar?
UK has a number of smaller, specialist banks, but today I’m only looking at the big FTSE 100 lenders:
Lloyds Banking Group
NatWest Group
Barclays
HSBC Holdings
Standard Chartered
Why not smaller banks? I think that some of them could be attractive investments at current levels. However, recent events in the US suggest to me that smaller and more specialist lenders might be more risky than larger banks at the moment.
My approach is to play safe, if I’m in doubt. The biggest banks are the most closely-watched by regulators. After reviewing their 2022 results, I’m confident they’re in good health and are performing well.
Are bank shares really cheap?
I think it’s important to be realistic about how banks are likely to perform as an investment. They’re cyclical businesses. In a recession, profits can plunge as bad debts rise and lending shrinks.
Even if we avoid a recession in the UK, growth is expected to be pretty minimal in 2023 and 2024. Broker forecasts for the UK banks reflect this.
Although the outlook is stronger for Asia-focused HSBC and Standard Chartered, I think they still face risks in China.
All of this means that when I buy bank shares, I want them to be cheap. I’ll then hope to benefit from high dividend yields and, ideally, some capital gains (tax-free in an ISA) when market conditions improve.
The good news is that I think the FTSE 100 banks probably all are fairly cheap right now:
All the banks listed above are trading below their book value
Except for Standard Chartered, they all offer dividend yields of 6%, or more
They’re all trading on forecast price-to-earnings ratios of six, or less
Broker forecasts suggest a stable outlook for profits
What I’d buy now
I’d be quite comfortable holding any of the FTSE 100 banks I’ve listed.
From the UK-focused banks, I’d choose Lloyds or NatWest. Right now, I can’t see much difference between them, except the latter’s forecast dividend yield of 6.9% is higher than Lloyds’ (5.9%).
Of the two emerging markets banks, I’d probably choose Standard Chartered over HSBC, because I think it has stronger growth prospects.
Whatever I decided, I’d certainly want to top up my ISA before the end of the tax year, if I could. The tax-free benefits I get from this account are too good for me to waste.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post Should I buy bank shares now for my Stocks and Shares ISA? appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
})()
More reading
10 shares that Fools have been buying!
I’d build a second income using £5 a day
Down 84%, this growth stock is a ‘no-brainer’ buy for me
UK stocks are sliding, but I’m not worried!
Aim for £1,000 passive income buying 40 shares of this FTSE 100 stock a week
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. SVB Financial provides credit and banking services to The Motley Fool. Roland Head has positions in NatWest Group Plc and Standard Chartered Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, Lloyds Banking Group Plc, and Standard Chartered Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.