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The UK’s big four banks share a common core of making money from lending and taking deposits, with net income margins a key revenue source. They also share a sensitivity to macroeconomic conditions, benefiting from periods of high interest rates and facing increasing loan loss risks during recessions.
But the quartet of NatWest, Lloyds, Barclays and HSBC is not alike in every respect. NatWest and Lloyds are firmly domestically focused, with dominant positions in the UK mortgages market alongside Nationwide. Barclays in contrast is more diversified. It combines its UK high street bank and credit card business with a US banking and credit card arm.
But what really sets Barclays apart from NatWest and Lloyds is its investment banking division, where it competes with the likes of US groups JPMorgan and Goldman Sachs, advising on M&A deals and trading equities. HSBC, by far the biggest of the four, possesses the greatest global reach, with a major Asia-Pacific focus.
Both HSBC and Barclays have embarked on strategic turnarounds for their businesses. The former is prioritising high-growth markets in Asia and scaling back its investment banking operations outside that region, while Barclays’ plan — designed to deliver a “Simpler, Better and More Balanced” business delivering higher and more stable returns — is centred on reducing the bank’s reliance on volatile investment banking.
Although the latter is responsible for the lion’s share of the bank’s pre-tax profits, it has a weaker profitability ratio. The investment banking division’s return on tangible equity for example was 10.6 per cent in 2025 (8.5 per cent in 2024), trailing the 20.7 per cent (23.1 per cent in 2024) achieved at its UK retail and business branches. Barclays’ shares have re-rated in the right direction since the programme of change was launched and as it continues to evolve, there is scope for further gains.
BUY: Barclays (BARC)
Barclays plans to return more than £15bn to investors over the next three years as part of its new set of financial targets, as the FTSE 100 bank delivered better than expected profits in the final quarter of 2025.
The bank, which stands out from UK peers due to the scale of its investment banking division, aims for a return on tangible equity of more than 14 per cent in 2028, up from 11.3 per cent in 2025.
More cost cutting is central to chief executive CS Venkatakrishnan’s plan.
Profit surged by 44 per cent at the investment bank against the last quarter of 2024. There were also strong performances at the UK corporate bank and US consumer bank, with profits up more than 50 per cent at both. However, income from the UK high street lending unit tumbled 13 per cent, and the private bank and wealth management arm also performed poorly.
Barclays’ shares trade on 1.1 times tangible book value for 2026, making it the cheapest of the UK banking majors. While this is by no means a risk-free play, progress is being made.
HOLD: BP (BP.)
BP has written off more than $4bn (£2.9bn) and stopped share buybacks in a bid to start this year with a clean slate. writes Alex Hamer.
This is before incoming chief executive Meg O’Neill starts in April with a brief to bring BP back to the top table of European oil and gas majors.
BP reported an underlying replacement cost profit of $7.5bn for the year — 16 per cent behind 2024. For Q4, the underlying replacement cost profit was $1.5bn, down from $2.2bn in the third quarter.
The cost reduction plan announced alongside the results takes the goal from $4bn-$5bn in annual “structural” costs to $5.5bn-$6.5bn, reflecting the sale of 65 per cent of Castrol. BP said it had cut $2bn of costs in 2025.
This is the starting point for O’Neill and new chair Albert Manifold.
RBC Capital Markets analyst Biraj Borkhataria forecast that BP would try to “entice investors” with updates on the Bumerangue oil discovery in Brazil in a preview note last week, adding that the market should “heavily risk new discoveries, particularly if the company has only drilled one well”.
SELL: Dunelm (DNLM)
A competitive environment, higher operating costs and a quiet Christmas has left Dunelm with some serious work to do if it is to meet its full-year profit before tax guidance of £214mn, writes Erin Withey.
While sales volumes over the first quarter were up, the second quarter proved weaker as Dunelm attempted to maintain pricing discipline as peers engaged in heavy discounting.
Matters were not helped by a 9.2 per cent increase in net operating cost.
And while management remains confident that these should reduce over the next two quarters, analysts at Panmure Liberum suggest this may not be enough to meet its full-year guidance.
“While the valuation has derated significantly, whether it is sufficiently compelling to attract new long-only interest remains debatable,” the broker says. “We therefore recommend selling into any strength today.”
We are inclined to agree. Even if some operating expenses do fall away, the reality is that hitting guidance will require a material acceleration in sales.
