The Motley Fool

Lloyds vs HSBC! How £1K invested in FTSE bank shares fared in 5 years

The coronavirus pandemic has inflicted great pain on FTSE 100 banking shares. Today, I’m taking a look at the share prices of Lloyds Banking Group (LSE: LLOY) and HSBC Holdings (LSE: HSBA) to see how £1,000 invested in either one would have done over the past five years. I’ll also discuss what investors may possibly expect from the two banking giants for the rest of the year.

Year-to-date (YTD), the stocks are down about 51% and 30% respectively, which means the shares are clearly in bear market territory. 

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Reading the numbers

Under each company name below, you can see how the price has changed over the past five years and what this change equates to in terms of the compound annual growth rate (CAGR). Then, I’ve shown how £1,000 would have fared over five years.

Past share prices are for mid-April 2015. Current ones are closing prices on 17 April. I haven’t factored-in any brokerage commissions or taxes.

Please note that until recently, both FTSE 100 firms paid regular dividends that could also have been reinvested. The calculation below doesn’t take into consideration the dividends or the reinvestment of that income.

You see, on 31 March, the Bank of England’s Prudential Regulation Authority (PRA) requested that UK-listed banks suspend current and future plans to return money to shareholders.

Thus many banks, including Barclays, HSBC, Lloyds, RBS, and Standard Chartered won’t be paying dividends or buying back shares for a while.

LLoyds

The share price has fallen from 79p to 30.45p, although on 2 January 2020, Lloyds shares were around 63p.

CAGR: -17.36%

£1,000 would have decreased to about £385.

Many retail investors have bought LLOY in recent years thanks to a history of generous dividends. But these are now suspended. On 3 April, Lloyds released an update that said the “board will decide on any dividend policy and amounts at year-end 2020. We expect that the months ahead will be exceptionally challenging for businesses and households across the UK”.

The bank will release its Q1 interim management statement on 30 April.

HSBC

The share price has fallen from 629p to 412.05p, but on 2 January 2020, HSBA shares were around 595p.

CAGR: -8.11%

£1,000 would have decreased to about £655.

HSBC is one of the largest banks and financial organisations worldwide. On 31 March, management issued a press release that said: “HSBC has a strong capital, funding and liquidity position. However, as a result of the global impacts of Covid-19, and its impact on interest rates, market levels and the forward economic outlook, we expect reported revenues to be impacted”.

It will report Q1 2020 earnings on 28 April. 

Can FTSE bank shares recover in 2020?

Both Lloyds and HSBC are likely to report significant earnings declines for the first quarter. Yet they look cheap (and therefore appealing) to many. Of course, if you’re not currently a shareholder, you may want to analyse the metrics before committing new capital to the stocks.

According to the International Monetary Fund (IMF), the global economy will contract 3% in 2020. Yet in 2021, the IMF forecasts robust growth. Stock prices generally reflect expectations of future profits. If you agree that these grey clouds may dissipate in the coming months, it may also be time to start to nibble on FTSE 100 banking stocks.

Although it’s impossible to know if bank shares have bottomed, I believe Lloyds and HSBC are beginning look quite attractive from a risk/reward perspective.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.