These FTSE 100 shares both carry rock-bottom valuations. Which would be the better option for investors to research and think about buying?
Barclays
The Barclays (LSE:BARC) share price has rocketed 70% over the course of 2024. It’s an ascent I feel leaves it vulnerable to a sharp correction during the new year.
The Footsie firm’s soaring share price comes despite a series of challenges in the near term and beyond. Firstly, it may struggle to grow its loan book in the event that — as appears increasingly likely — the UK economy endures further low growth.
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In this climate it can also expect a rise in domestic credit impairments, adding extra pressure given the high level of US card delinquencies. Total bad loans came in at £1.3bn between January and September due to problems across the pond.
Falling interest rates could help reduce credit impairments and stimulate loan demand. But this will come at the expense of net interest margins (NIMs) which are already pretty thin.
The biggest threat to Barclays’ share price however, could be thumping financial penalties related to motor finance. The Financial Conduct Authority’s (FCA) probing claims that Britain’s lenders mis-sold car loans by paying unlawful loans to motor retailers.
Signalling the threat to banks’ profits and capital ratios, FCA general counsel Stephen Braviner Roman predicted total costs could exceed £30bn. He also said that the episode could end up as expensive as the payment protection insurance (PPI) scandal earlier this century.
This eventually cost the banking industry £53bn in fines.
Today, Barclays shares trade on a price-to-earnings (P/E) ratio of 6.8 times for 2025. However, I’m not tempted to buy the bank even on this valuation.
HSBC Holdings
HSBC‘s (LSE:HSBA) another FTSE 100 bank trading on a rock-bottom P/E ratio. For 2025, this sits at just 7.7 times.
It faces some of the same near-term challenges as Barclays. More specifically, this includes a combination of weak services demand and growing loan impairments as China’s economy struggles and contagion spreads to its other core Asian markets.
There may also be fresh turbulence caused by its exposure to the Chinese real estate market. To date, it’s endured write-downs exceeding $3bn due to the country’s spluttering property sector.
Yet despite this, I believe HSBC shares may be worth serious consideration. This is because, unlike Barclays, the bank’s focus on emerging markets could deliver spectacular returns over time.
In Asia, demand for financial services is expanding rapidly as population and wealth levels increase. Analysts at Statista think the continent’s banking sector will grow at a compound annual rate of 5.8% between now and 2029.
HSBC has an excellent chance to capitalise on this as well. It’s investing heavily in fast-growing digital banking, while it’s also spent billions to improve its wealth management and commercial banking divisions in the region.
The bank hopes that splitting its operations into ‘East’ (Asia and the Middle East) and ‘West’ (traditional markets like the UK and US) will help accelerate growth in the region too.
Both Barclays and HSBC offer up risks to investors. But, on balance, I think the potential for long-term gain makes the latter bank worth a close look. And especially at today’s prices.
