Lloyds and NatWest shares are experiencing a notable downturn, prompting discussion among investors about whether it’s time to buy. On February 9, 2023, NatWest (LSE: NWG) saw a significant drop, falling almost 5% to become the largest loser on the FTSE 100 index. Lloyds Banking Group (LSE: LLOY) followed closely behind, declining nearly 2%. Notably, these declines occurred amidst an otherwise favorable start for the blue-chip index.
This dip is not an isolated incident, as both banks have faced declines recently. On February 5, NatWest and Lloyds fell 6% and 5.6%, respectively. While these fluctuations are common in stock markets, long-term investors remain optimistic. Over the past year, NatWest shares have risen by nearly 50%, while Lloyds shares have increased by 70%. In a two-year timeframe, their growth percentages are impressive at 199% for NatWest and 155% for Lloyds, complemented by generous dividends.
Recent Causes of Share Price Declines
Investor concern stems from the Bank of England’s recent decisions. On February 5, the central bank maintained the base interest rates at 3.75% while suggesting potential cuts could occur as early as March. Lower rates could negatively impact banks’ net interest margins—the difference between the interest paid to savers and charged to borrowers—undermining profitability.
Market Analytics and Price Ratios
The current price-to-earnings (P/E) ratio for NatWest stands at 12.6, which is reasonable, whereas Lloyds has a P/E of 15.25. Both banks maintain price-to-book ratios around 1.2, indicating they are not overpriced but are no longer perceived as bargains. The recent share price declines do not appear to correlate with market valuations when compared to global competitors like Barclays and HSBC.
Strategic Movements by NatWest
Today’s dip for NatWest is partly a market reaction to the announcement of its £2.7 billion acquisition of UK wealth manager Evelyn Partners. This strategic move marks NatWest’s largest acquisition since its taxpayer bailout in 2008. The bank’s CEO, Paul Thwaite, aims to expand into more lucrative sectors such as private banking and wealth management to enhance growth.
Investor Perspectives on Future Growth
- Dividend yields have decreased, with NatWest yielding approximately 3.8% and Lloyds yielding about 3.4%.
- Despite lower yields, there is potential for growth in dividends and share buybacks.
- NatWest announced a £750 million share buyback program, indicating a robust cash flow within the sector.
In conclusion, while there are uncertainties regarding the UK-focused banks, strategic steps taken by NatWest and the overall financial health of both banks keep the conversation active among investors. Amidst the fluctuations, the potential for future growth remains a topic of interest for those contemplating whether it’s the right time to invest in Lloyds and NatWest shares.
