Head-to-Head: Barclays PLC vs Standard Chartered PLC vs HSBC Holdings plc


HSBC Holdings (LSE: HSBA) (NYSE: HBSC.US), Standard Chartered (LSE: STAN) and Barclays (LSE: BARC) (NYSE: BCS.US) have all lagged the FTSE 100 over the last year, leaving all three looking very cheap by most measures.

Company 1 year share
price movement
FTSE 100 +4.3%
Standard Chartered -12.5%
HSBC Holdings -13.2%
Barclays -23.3%

Piggy bankIn this article, I’ve rated HSBC, Standard Chartered and Barclays on five key measures, to see which scores highest, and tops my list of recommended banking buys.

1. P/E ratio

Here’s how the three banks compare in terms of their 2014 forecast P/E ratios:

  Barclays HSBC
Holdings
Standard
Chartered
2014 forecast P/E 9.8 11.4 11.0

Barclays is a clear winner here, thanks to its single-digit forecast P/E ratio of 9.8. The UK bank is going cheap because investors are not yet fully-confident that its turnaround plan will succeed.

2. Price-to-book ratio

Buying assets for less than their underlying assets are worth helps to minimise the chance of losses from an investment, assuming the reported asset values are correct, and are not impaired.

  Barclays HSBC
Holdings
Standard
Chartered
Price-to-book value 0.75 1.05 1.20

Barclays wins again, as its shares trade at a significant discount to book value — a key appeal for value investors.

3. Dividend yield

Banking shares have lost some of their dividend appeal since the financial crisis, but both Asia banks still look attractive, and Barclays’ payout is expected to rise fast over the next couple of years.

  Barclays HSBC
Holdings
Standard
Chartered
2014 prospective yield 3.4% 5.1% 3.9%

The FTSE 100’s largest bank, HSBC, is a clear winner here, with a prospective yield in excess of 5% which should see the per share payout finally rise above 2008 levels.

4. Return on equity

A key measure of profitability for banks is their return on equity (RoE) — effectively the profit generated as a percentage of the bank’s equity, or net asset value.

  Barclays HSBC
Holdings
Standard
Chartered
Return on Equity (2013, adjusted) 4.5% 9.2% 11.2%

Standard Chartered wins in this category, as it has done continuously since 2008. I expect both Barclays and HSBC to do better in 2014, but there are no guarantees.

5. Capital strength

From 2015, banks’ financial strength will be measured using the Common Equity Tier 1 Ratio (CET1). A CET1 ratio of at least 7% will be required, but anything less than 10% is already considered to be a potential weakness:

  Barclays HSBC
Holdings
Standard
Chartered
Common Equity Tier 1 Ratio (2013) 9.3% 10.9% 11.2%

Again, the winner is Standard Chartered, albeit only by a narrow margin. Barclays is the laggard here, and its sub-10% CET1 ratio is probably one reason why its shares trade at a discount to book value.

The overall winner is…

It’s a draw! Barclays and Standard Chartered won two categories apiece, and in my view both offer decent upside potential: Barclays’ share price should eventually be re-rated to reflect its book value, while I believe the market is underestimating the medium-term growth potential in Standard Chartered’s key Asian markets.

I rate all three stocks as a buy, and I'm not alone -- Standard Chartered was recently chosen as one of "The Motley Fool's Three Shares To Beat Property".

All three selections have an emerging markets bias, and you can find full details of the other two stocks inside this free, no-obligation report. To receive your copy today, simply click here now.

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Roland owns shares in HSBC Holdings, Barclays and Standard Chartered. The Motley Fool owns shares in Standard Chartered.