Time To Ditch Standard Chartered PLC (And Buy HSBC Holdings plc)?

Prospects for HSBC Holdings plc (LON:HSBA) beat those of Standard Chartered PLC (LON:STAN)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Standard CharteredIf you haven’t done so already, it could be time to ditch your holdings of Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).

The emerging market bank was once a darling of investors, trading at a premium to its peers. It had a ‘good’ financial crisis, it moved early to restore its balance sheet with a rights issue in 2010, and it was a profitable play on growth in Asia.

But it seems the bank lost its poise in 2012 when it was accused of breaking US sanctions against Iran, for which it accepted a $667m fine. There has been a litany of bad news ever since: aggressive expansion in Korean consumer finance led to a big write-down, bad debts rose, a messy reorganisation put all business units under deputy CEO Mike Rees and saw the departure of respected finance director Richard Meddling, and there have been rumblings of another rights issue.

Then last month the bank issued a profits warning alongside a 20% drop in first half results. Since the beginning of 2012 its shares have underperformed HSBC (LSE: HSBA) (NYSE: HSBC.US) by 40%.

In reverse

This week, Standard’s shares wobbled after extensive reporting of the bank’s travails by the Financial Times. Based on interviews with “dozens” of analysts, investors, competitors and insiders, the FT thinks the bank’s growth strategy has slammed into reverse as its seeks to conserve cash. The accusation is that growth was bought at the cost of lower credit quality and lower provisioning for bad debts than its rivals. Now, the bank is losing competitive position. It has dropped from 8th place to 21st in Asian project finance and 16th to 23rd in trade finance, both core businesses.

That raises the risk of a further cash call or a cut to the dividend — at least one broker, Jeffreys, thinks the payout could be at risk. True, Standard Chartered still has a return on equity of over 10%, well ahead of many European banks, but that lead would evaporate if the bank was forced to make large provisions.

The FT has also led speculation that Peter Sands’ job is on the line – strenuously denied by the company.

Safer bet

For investors looking for a play on Asian economies, HSBC looks the safer bet. It has more globally diversified earnings, and after the debacle of its investment into US sub-prime lending a chastened management has a conservative attitude to risk, concentrating on costs cutting rather than expansion. Yielding 5%, the shares are a great income stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony Reading owns shares in HSBC. The Motley Fool owns shares of Standard Chartered.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »