The Lloyds vs Barclays share price rated

As I noted in a recent article, I believe the Lloyds (LSE: LLOY) share price currently has more potential than at any point in the past decade. However, I think the company’s peers also have a lot of potential. And with that being the case, I have also been taking a closer look at the Barclays (LSE: BARC) share price. 

If I had to choose, I believe one has the potential to produce significantly higher returns than the other. 

Barclays share price potential

I think two words describe the main difference between Lloyds and Barclays… international diversification. Barclays has it. Lloyds does not. After the financial crisis, the latter quickly reduced its global footprint to streamline the business and improve the operating performance. 

Conversely, Barclays was busy expanding. This growth has catapulted the business into the list of the top 10 largest banks in Europe. It also helped the company navigate the coronavirus pandemic. While its international investment bank provided a steady stream of income, the rest of the business was trying to analyse how rising loan losses would hit profits. 

I think this diversification gives the company an edge over Lloyds. While Barclays can capitalise on the global economic recovery via its international business, its peer is far more reliant on the domestic UK market. 

Lloyds’ domestic focus is the most considerable risk to the bank’s growth. It means the success of the group is tied to that of the UK economy. If the economy starts to struggle, the lender could as well.

That is not to say the Barclays share price is risk-free. Its international investment arm can be an unpredictable beast. If the market environment is unfavourable, losses can quickly become unwieldy. This makes it harder for me to analyse the business’s long-term outlook. 

Lloyds shares appear attractive 

While I think Barclays’ international exposure gives the group the edge over Lloyds, due to the risks outlined above, I am not entirely convinced this is the better buy. 

Instead, I think I would rather own Lloyds for my portfolio. The UK economy is currently firing on all cylinders, and the lender should be able to capitalise on this growth over the next few years.

The business is also well capitalised, which suggests management has plenty of headroom to increase shareholder returns. There is already speculation the group will unleash a substantial share repurchase allocation alongside its fourth-quarter results. A dividend increase is also a possibility. 

Barclays also has the scope to increase investor payouts, but its large investment bank is capital intensive. This could have an impact on its balance sheet and capital ratios, suggesting the group may not be able to return as much as Lloyds with its simplified business model. 

Therefore, if I had to pick between Barclays and Lloyds, I would buy the latter for my portfolio.