How Natwest, Lloyds, Barclays and HSBC fired up the FTSE 100 in 2025
If 2025 was supposed to be the year of the AI bubble, nobody told Britain’s banking giants. Amidst the noise of the US tech boom, the UK’s FTSE 100 banking heavyweights, Natwest, Lloyds, Barclays, and HSBC, have staged a formidable, if understated, rally.
Lloyds delivered an astonishing 75.8 per cent gain, while Barclays surged 65 per cent and Natwest rose 56 per cent. The major UK banks easily outpaced titans like Microsoft (15 per cent), Apple (14 per cent), and Amazon (a mere 2.4 per cent). Only Alphabet (67 per cent) was able to challenge the top-tier UK lenders
The year 2025 has been kind to UK banks, with steady victories in the motor finance debacle and skirting a highly speculated tax raid in the Autumn Budget.
Though it hasn’t been an easy ride.
The motor finance scandal still has lenders on the hook – albeit for a much more modest sum – while deeper, historic qualms, such as the spectre of the Bernie Madoff fraud, have returned to haunt HSBC.
Yet it’s the banking sector that continues to drive the FTSE 100 forward, helping the blue-chip index seal its own bumper year.
The FTSE 350 Bank index has easily outpaced the broader blue-chip FTSE 100, with a year-to-date gain of nearly 50 per cent, compared to just 17 per cent for the wider FTSE 100.
FTSE 100 banks splash cash
Over the course of 2025, the UK’s Big Four banks, HSBC, Natwest, Lloyds and Barclays, helped add over £115bn to the value of equities listed on the London Stock Exchange.
HSBC’s market cap, for example, swelled by nearly £50bn after the shares jumped almost 40 per cent.
William Howlett, financials analyst at Quilter Cheviot, told Morning Wire: “After such a strong re-rating, upside looks more modest, but valuations remain supportive particularly relative to wider markets.”
Benjamin Toms, equity analyst at RBC, said UK bank valuations were “elevated, but not stretched”.
Both analysts agreed that the key indicator for the bank’s next 12 months would be the quality of returns.
Banks have been able to maintain “attractive levels of capital return, including bumper buybacks,” Howlett said.
Toms added that whether this would be “sustainable” over the next year would be a key focus for investors.
This year, banks have dished out billions to shareholders through buybacks, with HSBC leading the pack. It has returned just under £4bn.
However, the banking titan, which is now led by Georges Elhedery, was forced to pause its buyback programme to fund the controversial purchase of Hang Seng Bank in Hong Kong.
The bank’s shares in London sank six per cent on the news of the takeover, but quickly recovered and crossed the 1,000p mark for a second time just under two weeks later.
Lloyds kicked off a £1.7bn buyback in February. Both RBC and Jefferies analysts have named the stock as their preferred pick of the City banks due to its anticipated returns over the forthcoming years.
Jefferies analysts have said Lloyds’ “longer than average” structural hedge would boost takings in the year to come, predicting over £17bn will be returned to investors by 2027.
Though it’s not just the banking giants garnering affection, Toms added that the “relatively cheap” valuations of small and mid-cap lenders made a promising bet.
Medium-sized lenders have benefited from the loosening of banks’ capital requirement rules, known as MREL (minimum requirement for own funds and eligible liabilities), opening up further growth prospects.
Introduced in the aftermath of the 2008 financial crisis, MREL rules impose strict, tailored requirements on banks with assets between £15bn and £25bn and serve as a regulatory buffer to ensure lenders can be safely resolved in a crisis without taxpayer bailouts.
The Bank of England raised the threshold to £25bn-£40bn in July, an increase from the £20bn-£30bn originally floated in the consultation.
This gives smaller firms further breathing room to pursue more aggressive growth strategies without immediately encountering costly regulatory requirements.
Big four banks beat Magnificent 7
London’s premier stock market’s weighting towards ‘traditional’ stocks such as health care, oil and – of course – banks left it able to sidestep glum investor sentiment amid tech jitters.
While chatter about soaring AI valuations has dominated market conversations, UK banks have quietly outperformed the tech darlings on the New York Stock Exchange.
An exchange traded fund solely based on the performance of the Magnificent 7 – Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia and Tesla – offers a near 20 per cent year-to-date return, far below the FTSE 350 Banks’ near 50 per cent.
Individually, UK banks have also claimed victory on year-to-date gains, with Lloyds’ 75 per cent jump coming ahead of Alphabet’s 67 per cent.
The US tech panic failed to dent London’s investor sentiment. However, in October, a shock crossed the Atlantic in the form of private credit.
Debt-related issues triggered the collapse of car part maker First Brands and automotive credit lender Tricolor, which provoked a mass reevaluation of the health of credit markets in the US.
As investor appetite soured on the news, the FTSE 100 suffered its worst session since President Donald Trump delivered his tariff onslaught in April.
Leading these losses were banks – another indicator of the sector’s heavy all-important weighting on the index – with Barclays, which had exposure to Tricolor, falling four per cent. Lloyds and HSBC were also down over two per cent.
Banks’ Budget mayhem
The Bank of England has clamped down on private credit with the launch of its groundbreaking stress test to gauge how the opaque sector would respond to economic shocks.
But it’s not just private credit threatening lenders.
“We still see relatively elevated political risk,” said Toms.
UK banks had a volatile road to the Autumn Budget with the Treasury’s “hokey cokey” of briefings springing stock prices back-and-forth.
Natwest shed five per cent in a single trading session at the end of August after the left-leaning Institute for Public Policy and Research (IPPR) called for an annual £8bn tax on the sector targeting profit “windfalls” from quantitative easing.
The losses wiped nearly £2.5bn off the bank’s market value, with a total £8bn loss in the FTSE 100’s Big Five banks, including Lloyds, Barclays, HSBC and Standard Chartered.
But the dramas would continue with conflicting reports and U-turns from the Labour government, sending shivers across the banking sector.
Shares in the UK’s biggest lenders jumped following the Autumn Budget, when banks were spared from a proposed £26bn cash raid.
As markets digested the news, Lloyds rose nearly four per cent. Natwest and Barclays jumped roughly three per cent.
But banks have been warned not to take the news as a “free pass”.
Gary Greenwood, equity analyst at Shore Capital, said: “The Chancellor will likely want to see the banks pursuing more aggressive lending policies in order to support economic growth.
“Failure to do so could see this reprieve revisited.”
Banks quickly kept up their end of the tax bargain, with Lloyds, Barclays, HSBC and even US giants Goldman Sachs and JP Morgan all announcing fresh pumps of capital into the UK economy in the hours that followed the Budget.
But Howlett said the “volatility into the event” highlights the “potential political risks if next year brings changes to the status quo”.
Reeves has maintained a tight relationship with bank bosses, regularly hosting them for growth summits and even crisis tariff talks.
The Chancellor is also understood to have privately scorned the IPPR for its proposals targeting lenders.
However, Reeves is continuing to fight for her own political survival amid the fallout to her second Budget with calls for a regulatory probe into the Treasury’s rogue briefings.
The Labour left have shown no hesitation in seeing the banks as a target to drum up cash for the public purse, with former Deputy Prime Minister Angela Rayner previously lobbying Reeves in a secret memo to hike the surcharge on lenders.
Should Reeves be swapped out for a Chancellor less-sympathetic to the financial sector, bank shares would likely find themselves swallowed up in the turmoil as tax speculation resurfaces.