How to value bank shares – and what this says about TSB

Phil Oakley explains how to tell how much a bank is worth, and whether you should buy TSB shares.

Lloyds is selling off 25% of TSB at what looks to be a very low price much lower than the value Lloyds currently trades on the stock market for. So is TSB cheap? Or does it just mean that Lloyds shares are currently too expensive?

I want to answer this question and in the process, give you an idea of how to weigh up banking shares. I'll warn you right now this gets a bit technical in places that's banks for you. But I'll try to keep it as straightforward as possible, and hopefully shed a bit of light on just why banks are such tricky investments.

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2004£2,459m£284,422m£11,678m
2005£2,555m£309,754m£10,630m
2006£2,907m£343,598m£11,507m
2007£3,231m£353,346m£12,425m
2008£845m£436,033m£9,699m
2009£2,953m£1,027,255m£44,107m
2010-£258m£991,574m£46,902m
2011-£2,714m£970,546m£46,594m
2012-£1,343m£924,552m£44,684m
2013-£802m£847,030m£39,336m
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20040.86%24.421.06%
20050.82%29.124.04%
20060.85%29.925.26%
20070.91%28.426.00%
20080.19%458.71%
20090.29%23.36.70%
2010-0.03%21.1-0.55%
2011-0.28%20.8-5.82%
2012-0.15%20.7-3.01%
2013-0.09%21.5-2.04%
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Implied P/NAV (C/D)
Lloyds Banking Group£56bn£40.6bn1.38-2.04%10%?
HSBC£118.7bn£110.4bn1.089.30%10%0.93
Barclays£39.5bn£56.4bn0.76.40%10%0.64
Standard Chartered£32.8bn£28.3bn1.1611.20%10%1.12
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Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.