I’ve been looking for an opportunity to buy HSBC (LSE: HSBA) shares and I really fancy Barclays (LSE: BARC) too. Is this my chance?
I already hold Lloyds Banking Group, which I bought three years ago, and it’s been a superb investment. To be fair, all the big banks have.
The sector has been on a tear as higher inflation and interest rates widen net interest margins, the gap between what banks pay savers and charge borrowers. I’ve got spare cash in my SIPP and have been considering splitting it between Barclays and HSBC. I think they’d nicely balance my holding in Lloyds.
Lloyds is now largely a low-key domestic lender focused on UK households and small businesses. Barclays and HSBC are much bigger beasts.
FTSE 100 sector surge
Barclays still runs a sizeable corporate and investment bank in the US, while HSBC has huge exposure to Asia via Hong Kong and China. Both are targeting the Middle East too. That brings opportunity, but also risk, as today’s market moves show.
Barclays is one of the biggest faller’s on the FTSE 100 as Iran spooks markets, down more than 5% this morning. HSBC has dropped almost 4%. Banks are on the front line when geopolitical nerves are frazzled, particularly these two. UK-focused NatWest Group is down 3.3%, and Lloyds 2.8%.
One thing has stopped me from buying bank shares recently: they’ve just done too well. Barclays is up 50% over one year and 180% over five, while. HSBC has climbed 53% and 225% respectively. I’m wary of rocking up just as the party ends. Now I’m wondering if today’s dip is the invitation I’ve been waiting for.
On 25 February, HSBC reported a 7.4% drop in pre-tax 2025 profits, but that was mostly due to one-offs such as legal provisions and write-offs. It still made a mighty $29.2bn. Revenues rose a solid if unspectacular 4% to $68.3bn. The board is now targeting a return on average tangible equity above 17% by 2028, up from 13.3% in 2025.
Valuations dividends and buybacks
That’s encouraging, but HSBC’s price-to-earnings ratio has crept up to 15.5. Falling interest rates could squeeze margins, and it’s paused share buybacks to fund the completion of its stake in Hang Seng Bank.
I’ll hold fire for now, and target Barclays. On 10 February it posted an impressive 13% rise in 2025 pre-tax profit to £9.1bn, unveiled a £1bn buyback and pledged to return £15bn to investors over two years.
Thanks to that earnings growth, Barclays now trades on a modest P/E of just 10.3, notably cheaper than HSBC. The trailing yield is just 2%, compared to 4% at HSBC, which reflects its preference for buybacks. I prefer to be rewarded via dividends, but I’m willing to make an exception here. Barclaysisks include volatile stock markets, falling interest rates, and falling short of high investor expectations.
With a long-term view, I think both remain worth considering. I’ll start with Barclays, buying a chunk when The Motley Fool moratorium on trading stocks I’ve written about expires, then take advantage of any further dips. I’ll be watching the HSBC share price like a hawk too.
