Lloyds vs Barclays: which FTSE 100 bank shares look better value after the sell-off?

Fear’s been spreading across UK bank shares, with Lloyds (LSE: LLOY) and Barclays (LSE: BARC) both falling sharply from their summer highs. And the selling has gathered pace in recent weeks.

That could be bad news for existing shareholders. But for investors looking for value, falling share prices can also create opportunities – particularly when the businesses haven’t suddenly fallen.

So have Lloyds and Barclays now become more attractive, or should investors brace for further declines? I’m comparing the two to see which looks better value after the sell-off.

Why are Lloyds and Barclays falling?

I put the recent sell-off in bank shares down to two main forces. First, rising gilt yields. This matters hugely to banks because they feed into borrowing costs across the economy.

Mortgage rates are rising, businesses face a higher cost of finance and households have less money to spend. Add in rising inflation and signs of a weakening consumer, and it’s easy to see why banks have ended up at the coal face of these concerns. The latest surge in gilt yields has only intensified those fears, with the 30-year yield recently climbing above 6%.

Then there’s the Autumn Budget. With the government facing a difficult fiscal backdrop, speculation continues to swirl around whether banks could be an easy source of extra tax revenue. The possibility of a higher bank levy has added another layer of uncertainty for shareholders.

But has the market become too pessimistic? And if so, which bank looks better value today?

Two very different growth stories

Both banks are already highly profitable. But their plans for the future are quite different.

Barclays is building on the momentum it has generated. Management has upgraded its 2026 group income target to around £31.5bn and expects return on tangible equity to exceed 12%.

The interesting part for me is that the bank isn’t simply returning today’s profits to shareholders. It’s also investing heavily in technology and efficiency, with the aim of delivering sustainably higher returns beyond 2028.

Lloyds has a rather different opportunity. Its new ‘Accelerate 2030’ strategy is built around its dominant UK position and aims to capture growth in areas such as wealth, pensions, housing and infrastructure.

So while Barclays is focused on making an already-strong franchise generate even better returns, Lloyds is trying to broaden and accelerate its growth.

Both have ambitious plans for the years ahead.

Which looks better value?

Value-wise, on the face of it Barclays looks cheaper, trading at around nine times earnings compared with 12.5 times for Lloyds. Both offer a low single-digit dividend yield. So not a lot to go on there.

For me, a more decisive factor is where the UK economy goes from here. If Britain moves towards stronger growth, I think Lloyds could have more to gain. Its huge UK customer base and exposure to mortgages, businesses, wealth and pensions could give it plenty of scope to benefit.

Barclays meanwhile, has a more diversified business and arguably doesn’t need the same strength from the UK economy to deliver growth.

But personally, I’m not sure there’s much to separate the two stocks today. And I’m not rushing to buy either, having already got significant exposure to financials.

Should you invest £5,000 in Lloyds Banking Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group Plc made the list?

Andrew Mackie does not hold any positions in the companies mentioned.