Investors lose £7bn on UK banks despite higher rates

HIGH street bank shares lost £7bn for investors last year amid growing scepticism over future profits for lenders.

Barclays, Natwest, Virgin Money and Metro shares all failed to make gains since January owing to a bleaker outlook for the sector.

Natwest, which was embroiled in the Nigel Farage debanking scandal, ended 2023 deep in the red after shares fell by a fifth since the year started.

That equates to about £4.6bn wiped off the value of the bank.

Barclays shares dropped, with investors losing about £1.5bn in value. Lloyds shares also ended 2023 flat having failed to make significant gains.

Smaller lenders such as Virgin Money and Metro Bank have also suffered. Metro lost most of its value after an emergency rescue deal to keep it afloat, while Virgin Money has failed to revive its share price. In total, the combined market cap of all four banks in the red has declined by £7bn.

According to AJ Bell, investors who invested £1,000 in the five high street bank stocks on Jan 1 2023 and cashed out in late December would be left with £853.80. That includes dividends, which are not included in the value of the bank shares.

The decline underlines the difficulties over the past 12 months amid fears profits from higher interest rates are starting to fade. The Silicon Valley Bank (SVB) collapse in March and the Farage episode in the summer have also weighed negatively on the sector.

Gary Greenwood, a Shore Capital analyst, said: “Share prices had been performing well on the back of rising interest rates, then it all came crashing down with SVB and that took the wind out the sails of the sector.

“Rising rates were having a favourable impact on margins and revenue and that stopped and went into reverse.”

Fitch Ratings last month warned that the boost to UK bank profits from higher interest rates was coming to an end. Banks make profits from the spread between what it pays depositors and the interest it charges borrowers, known as the net interest margin.

However Fitch said net interest margins would decline in 2024 and loan impairments would rise.

HSBC was the only UK lender whose shares rose last year. The company’s market capitalisation grew by about £15bn to £120bn. HSBC is set apart from its UK peers for its large exposure to fast growing Asian markets. Investing £200 in HSBC would have given you £256 today, according to AJ Bell.

Overall, banks globally have performed solidly in 2023, underscoring the difficulty in the UK. The Stoxx 600 Banks index, which tracks global banks, made gains of 17pc last year.