Investors in oil and mining stocks finally have something to smile about following Thursday’s hell-for-leather charge spearheaded by stricken miner Anglo American, which surged 15% in a day. There has been no such respite for investors in the major FTSE 100-listed banks, where sentiment continues to decline. 

Banks bomb

The last six months have been dreadful for banking stocks. In that time, HSBC Holdings (LSE: HSBA) has fallen 22%, Royal Bank of Scotland Group (LSE: RBS) has plunged 30% and Standard Chartered (LSE: STAN) has crashed 51%. Each bank has its own well-documented problems, but each has also been entangled in the wider web of worry.

All the stimulus in all the world can’t lift the global economy out of its torpor, which is so weak it can be crushed by a wafer-thin US interest rate hike. Analysts were airily talking of the Federal Reserve hiking rates another four times in 2016. But now they’ve been silenced by weaker-than-anticipated US service sector data, with some commentators suggesting the US could even slip back into recession. That’s bad news for global banks as rising long-term interest rates help them expand their net interest margins, which is a struggle when rates are flat.

Low rates forever

Two years ago I predicted that UK interest rates would go nowhere for a decade, and I see no reason to change my mind. The world is drowning in debt, including emerging markets that have borrowed trillions of dollars, and simply can’t take higher borrowing costs. Worse, the longer rates stay low, the more people borrow, and the harder it will be to increase them. The prospect of no further rate hikes cheered markets but the commodity bonanza didn’t extend to the banks, which remain vulnerable to the looming economic slowdown. At least low interest rates should minimise bad debts for now. 

Trouble spreads

Management at HSBC has publicly admitted the scale of the problem by announcing plans to cut the number of full-time staff by between 22,000 and 25,000. It’s freezing pay and hiring at its consumer and investment banking units as it plans to cut as much as $5bn from its cost base by the end of 2017.

RBS remains a reliable font of bad news, recently setting aside another £500m of PPI provisions, £1.5bn for US residential mortgage-backed securities probes and £4.2bn of pension fund top-ups. Chief executive Ross McEwan’s announcement that it would make a loss in 2015 surprised nobody. In fact, nothing about RBS surprises anybody these days.

You might say the same about Standard Chartered, where profits will continue to labour under the double burden of its restructuring programme and continuing Asia weakness. Citi has just warned that its share price correlates with cheap oil, and struggling emerging markets markets proved it right on Thursday, when the stock spiked 6% in the commodity rebound. It still has a long journey ahead of it. 

HSBC is easily my pick of the three, partly because it’s the only one that offers a dividend, currently a mind-blowing 6.86%. One day you’ll be glad you bought at today’s valuation of 9.71 times earnings, but only invest if you can hang on until that distant day arrives.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.