Banks prosper amid best-performing FTSE stocks of 2024

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Banks were among the best performing UK shares this year as higher interest rates boosted the sector despite concerns about the domestic economic recovery.

According to investment site Hargreaves Lansdowne, NatWest shares have delivered their highest return since mid-December this year, rising 101 per cent including price appreciation and dividends. Barclays was the fifth best-performing stock with an 81 percent gain.

UK lenders have been buoyed by higher interest rates, which were cut to 5.25 percent in August after nearly a year. This improved level has allowed them to generate attractive net interest margins — the difference between the amount they repay and the amount they earn on deposits.

Analysts argue that banks have also benefited from a benign economic environment in which few people have defaulted on loans – a positive for lenders. But the outlook for the economy is mixed. Although the IMF upgraded its forecast for UK economic growth in October, the latest figures point to a second consecutive monthly slowdown in October.

Susannah Streeter, head of finance and markets at Hargreaves Lansdowne, said NatWest “has been on a roll” this year in particular, pointing to its third-quarter trading results, which beat expectations.

“Rates are expected to stay a bit higher for a little longer, creating better underlying performance as it keeps net income margins stronger,” Streeter said. He added that Barclays also benefited from lower-than-expected bad loans, adding that the bank had “a good grip on costs”.

Standard Chartered was also among the top ten performers this year, rising 54 percent on a total return basis.

Besides banks, “recovery” stocks — those that have the potential to bounce back after a downturn — also performed well. John Moore, senior investment manager at wealth manager RBC Bruin Dolphin, points to IAG, owner of aerospace company Rolls-Royce and British Airways. The shares rose 94 percent and 84 percent, respectively, on a total return basis.

“Rolls-Royce could be the poster child for ‘recovery’ not just this year, but for decades,” Moore said. “For some, the business appeared to be in a tough spot but the refocus and improvements in civil aviation and defense have turned on the cash-generating burners.

“Continued recovery and momentum in aviation has helped IAG, as a result, be able to increase its yield per passenger and prioritize investment and, despite a strong balance sheet, have surplus profits to pay dividends for the first time. From 2019.”

Richard Hunter, head of markets at Interactive Investors, added that the British Airways owner “is now firmly on the upside”, noting that the surprise announcement of a €350mn share buyback program in November was a further reflection of its strong recovery.

“Indeed, shares have fallen 30 percent to pre-pandemic levels over the past five years, but the opportunity for further recovery is strongly evidenced by the price performance of the past two years, with shares up 127 percent. ” he added.

Corporate takeovers have featured prominently this year, helping to boost the share price of Hargreaves Lansdowne, which was bought by private equity firms including CVC Partners and packing company DS Smith, which was snapped up by US operator International Paper. Shares in Hargreaves Lansdowne are up 56 per cent this year while DS Smith is up 85 per cent, putting both among the top ten performers.