HSBC Holdings Plc And Barclays Plc: Which Bank Is The Better Buy?

Are HSBC Holdings Plc (LON: HSBA) and Barclays Plc (LON: BARC) finally set to turn the corner?

| 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.

Nearly a decade after the beginnings of the Financial Crisis, many of the UK’s largest banks are still in the midst of dramatic restructuring efforts as they navigate increased capital requirements, drastically-less-profitable investment bank operations and questions over the sustainability of the universal banking model. For investors seeking exposure to the banking industry, are HSBC Holdings (LSE: HSBA) and Barclays (LSE: BARC) reforming enough to make wise long-term investments?

Cost cuts

The major theme of HSBC’s restructuring has been slashing costs. Before the credit crisis, HSBC spread rapidly across the globe, building up an immensely costly workforce several hundred thousand strong. CEO Stuart Gulliver has focused on dramatically trimming costs, which has resulted in 87,000 pink slips over the past three years and an additional 50,000 set to be handed out before 2017. Major asset disposals, including multibillion dollar sales of Brazilian and Turkish operations, and the closing of 12% of retail locations worldwide will also help trim operating costs by more than $4.5bn annually.

Alongside a headcount reduction, Gulliver is aiming to trim $290bn worth of risk-weighted assets and redeploy roughly half to high-margin operations in Asia, the bank’s traditional breadbasket. While the sheen may have come off China’s rapid economic growth, the long-term outlook for the country and the region as a whole remains very good. Refocusing on Asia, even if the board has decided against relocating headquarters there, makes a great deal of sense as 66% of profits came from the region last quarter. If management can trim low-margin operations elsewhere and continue building on a strong foundation in Asia, I believe HSBC has significant growth potential.

In it for the long haul

Meanwhile, Barclays has also sold off non-core assets and refocused on its own domestic market in the UK. The bank’s strong retail lending operations and credit card business have proved highly profitable, boasting return on equity of 14.4% and 22.5% respectively. These two divisions have more than pulled their weight recently, something the still-too-large investment bank hasn’t been able to do. New CEO Jes Staley will be able to articulate his vision for Barclay’s future when he makes his first proper introduction to analysts when presenting full-year results in two weeks’ time. His actions thus far, including cuts to non-performing trading desks in peripheral Asian markets, suggest he’ll continue on the path his predecessor laid out by making deep cuts to low-return areas of the investment bank and redeploying assets to retail and credit card operations. Given the high returns and relatively low risk associated with these two divisions, I believe long-term shareholders would be well served by this plan.

  Return on Equity Price/Book Forward P/E Dividend Yield
HSBC 10.7% 0.41 8.9 7.6%
Barclays 7.1% 0.38 6.2 4.37%

As far as which bank is the better opportunity, I believe it comes down to whether investors are more comfortable owning a UK-focused or China-focused bank. The above table shows that each is trading at relatively favourable valuations, with HSBC pricier due to better performance metrics and growth potential. For investors with a long investing horizon and higher risk appetite, I believe HSBC’s great divided, location in a high-growth market and concrete plan for increased profitability make it a share that could reward shareholders for years to come.

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.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »