Both banks have bloated cost structures but HSBC’s is in worse shape, as the bank’s cost to income ratio was 67.3% in 2014. This compares to Standard Chartered’s cost to income ratio of 60.2%. But with declining revenues and rising loan impairments at Standard Chartered, its cost efficiency is likely to worsen significantly over the next few years.

Cost reduction plans

HSBC had tried to reduce costs by retreating from peripheral markets and scaling back its retail banking ambitions, but overall costs just seem to keep on rising. The bank will find it difficult to meet its mid-50s cost to income target, because the bank’s size and complexity has added almost $1 billion in additional annual compliance costs.

The bank’s new cost-cutting drive intends to be more ambitious than in the past. It is aiming for a reduction of 25,000 jobs, a cut in the size of its investment bank and a sale of its operations in Brazil and Turkey. Together, this should bring in cost savings of about $5 billion annually, and will cost the bank up to $5 billion over the next two years to implement the plan.

Standard Chartered plans to cut costs by $1.8 billion over the next three years, by exiting non-core businesses and introducing more standardisation and automation into its processes. In addition, CEO Bill Winters unveiled a new simplified organisational structure, which will see himself and regional CEOs assume more direct responsibility.

But, of greater concern had been the rapid rise in loan loss provisions over the past year… and loan losses could still rise further, because of its sizeable commodities lending portfolio. Loan impairments rose 80 percent to $476 million in the first quarter, from $265 million last year. This has fuelled concerns about the bank’s capital adequacy and whether a rights issue could be on the table.

In the long term, HSBC and Standard Chartered should benefit massively from their cost-cutting plans. But, in the short term, earnings is likely to deteriorate further, as new sources of revenue should not be able to offset losses from the disposal of non-core businesses. Furthermore, slowing emerging markets only compound to the problems of weak profitability in the near term.

Changes in the bank levy

One of the banks’ biggest costs has been the UK bank levy; and on this front, things will at least begin to improve. Chancellor George Osborne announced changes to the bank levy in the Budget this month. The levy would be gradually cut from 0.21% to 0.1% by 2021, and it will only apply to each bank’s UK operations from 2021 onwards. The loss in revenue to the Treasury will be offset by the introduction of a new 8% tax surcharge on bank profits, which will take effect from 1 January 2016.

Although this will be a trade-off of more short term pain for long term gain, HSBC and Standard Chartered are now less likely to move their headquarters out of the UK. By 2021, HSBC is expected to save £700 million annually, whilst Standard Chartered should save around £350 million.

The post The Race For Banks To Cut Costs: Standard Chartered plc & HSBC Holdings plc appeared first on The Motley Fool UK.

The trust’s current top three heavyweight holdings are Royal Dutch Shell (LSE: RDSB), HSBC (LSE: HSBA) (NYSE: HSBC.US) and British American Tobacco (LSE: BATS).

Shell

The big news from top FTSE 100 oil company Shell this year has been the agreed (but yet to complete) mega-takeover of the Footsie’s no. 3 hydrocarbons firm BG Group. City of London reconsidered the investment case for Shell in light of this news, and decided it was favourable. The trust said: “We believe that it is a good strategic move by Royal Dutch Shell and so added to [our] holding in it”.

I think it’s hard to blame Shell for taking the opportunity presented by the current depressed oil environment to swoop for BG, although there are short-term implications for the dividend. Shell intends to hold this year’s payout at last year’s $1.88, and to pay “at least that amount in 2016”. The compensation for near-term lack of dividend growth is a whopping 6.6% yield. And, with Shell’s shares recently trading at multi-year lows, now could be a good time for long-term investors to buy.

HSBC

HSBC still has a lot of work to do in order to get firing on all cylinders. The banking giant may be over the worst of customer redress and regulatory penalties for past failings, but other costs also need to come down. HSBC needs to improve profitability, and to meet regulatory capital requirements at the same time as maintaining its progressive dividend policy. Analyst consensus earnings and dividend forecasts suggest the City experts believe HSBC can do this.

The bank increased its dividend by 2% last year, slowing from growth that had previously been running in high single digits. Analysts expect a continuation of modest dividend growth this year and next (supported by earnings growth), which isn’t to be sniffed at when the current yield is a chunky 5.6%. Put the attractive yield together with a forward price-to-earnings (P/E) ratio of 11 — well on the cheap side of the FTSE 100 long-term average of 14 — and HSBC appears to have solid value credentials.

British American Tobacco

British American Tobacco (BAT) has been an exemplary dividend stock for many years. Just at the moment, though, the company is experiencing a tough environment. Adverse exchange rate movements hit hard last year, such that reported revenue fell 8.4%. At constant exchange rates revenue would have been up 2.8%.

Analysts expect a further fall in revenue this year, before a pick up in 2016. Nevertheless, earnings forecasts support expectations that BAT will continue its long record of annual dividend increases. The company lifted the payout by 4% last year, and further mid-single-digit growth is forecast. While BAT’s P/E of 17.4 and prospective yield of 4.3% may not look as obviously attractive as the ratings of Shell and HSBC, I would say the defensive tobacco group merits its premium to the cyclical oil and banking companies.

The post What This Top Dividend Portfolio Is Holding Now: Royal Dutch Shell Plc, HSBC Holdings plc And British American Tobacco plc appeared first on The Motley Fool UK.

Although large in terms of their market capitalisations, neither firm produces much added value to their product offerings. Go to HSBC for a bank account or a loan and we might as well go to any banking company; buy a ton of iron ore or copper from Rio Tinto and we could buy it from any producer (ignoring geographical limitations).

Cyclically challenged

These gargantuan firms might feel safe because of their size, but a peek at the longer-term share price charts in each case tells a story of disappointed long-term investors.

Perhaps now, with the shares down, both HSBC Holdings and Rio Tinto look attractive as cyclical bets on the next up-leg. Maybe. But I think there are better cyclical options on the stock market if we just look down the rankings to smaller market capitalisations.

Rather than going for these out-and-out cyclical monoliths with undifferentiated products, maybe it’s better to look for a firm that adds more value to the final product it produces. That’s why I’m looking closely at performance materials manufacturer Low & Bonar (LSE: LWB).

A niche operator

It’s true that Low & Bonar’s business has a large element of cyclicality, too. However, I think the firm’s strong position in a number of niche markets gives the company some insulation from the immediate effects of macro-economic cyclicality. There’s also scope for Low & Bonar to grow if its innovations and project solutions ‘click’ with customers.

The firm makes things such as carpet backing, side curtains for lorry trailers, tensioned architectural products, marquees, tarpaulins, artificial grass and soil reinforcement solutions such as grid matting and the like — but that’s not an exhaustive list.

Often Low & Bonar designs bespoke solutions for big projects and, it seems to me, keeps developing new products and innovations within its focus of operating as a performance materials firm.  

On track

This month’s half-year report showed a 0.9% uplift in revenue on a constant currency basis and the directors reckon Low & Bonar is on track to hit market expectations for the full year — City analysts following the company expect the firm to grow earnings 4% this year and a further 11% during 2016.

With an operating margin running at about 6.8% and the return on capital employed registering 11.8%, Low & Bonar rises above many other ‘me too’ operations that score lower ratings on those metrics. That suggests strength in the firm’s niche market positioning.

Low & Bonar’s financial record seems steady; perhaps the company can repeat the trick going forward:

A 69% dividend increase over four years is respectable. Meanwhile, rising revenue offers the promise of more to come.

If that dividend is to keep growing, Low & Bonar’s business has to keep expanding, too, and on that point, the firm’s record looks encouraging. With potentially benign macro-economic conditions ahead, we could see continuation of the progressive dividend policy.

Valuation now

At a share price of 69p (market cap. £225 million) FTSE Small-Cap constituent Low & Bonar trades on a forward dividend yield around 4.2%, and forecasters expect 2016 earnings to cover the payout more than twice.

Meanwhile, the forward price-to-earnings ratio sits at 11, which seems undemanding when taken with that dividend payment and the earnings growth analysts expect.

Low & Bonar’s shares remain down a bit from the levels achieved during 2014, but the weakness is nothing compared to the share-price destruction we’ve witnessed at HSBC Holdings and Rio Tinto, and could be something of a buying opportunity.

The post Why Low & Bonar plc Could Thrash Returns From HSBC Holdings plc And Rio Tinto plc appeared first on The Motley Fool UK.

Unfortunately, it’s not just Chinese investors that are feeling the effects of the country’s bear market. There are now some signs that declining stock prices are forcing investors to sell their houses to recoup losses. 

Property problems

At the beginning of July, China’s securities regulator announced that property had become an acceptable form of collateral for margin traders. But five days later, a number of Chinese real estate agents reported that investors were rushing to sell their properties, at a 10% discount to the market price, in order to cover losses from equity investments.  

For Asia-focused lenders, Standard Chartered (LSE: STAN) and HSBC (LSE: HSBA) this could be rally bad news. If investors really are looking to dump property to meet margin calls, it could spark a wave of selling across China’s already weak property market. This could in turn, force highly leveraged property developers out of business. The knock-on effects throughout the regional and global economy could be disastrous. 

Difficult to tell

It’s difficult to tell how banks like HSBC and Standard would cope if a portfolio of China’s debt mountain suddenly turned bad. Although, it’s reasonable to assume that the two banks would face a hefty bill. 

China is heavily indebted. Between 2008 and 2014 non-financial corporate debt grew at a rate of 24% per annum and at the end of 2014 the country’s total debt pile amounted to 220% of gross domestic product. Around 15% of the country’s annual GDP is now funding interest payments. 

This could become a problem for HSBC. The bank’s new strategy, to withdraw from international market like Turkey, Brazil and possibly even the UK, redeploying assets in the Pearl River Delta and Southeast Asia, will leave the bank overexposed to China’s indebted economy. City analysts have already expressed their concern at the bank’s decision to go ‘overweight’ China, at a time when the country’s future is uncertain. 

Still, in the short term, cutting 25,000 jobs and realigning its operations to focus on China should boost HSBC’s growth. However, a lack of international diversification could hold back the group’s long-term growth. 

Regional control

Standard Chartered has enough problems on its plate without having to worry about China’s debt. 

Nevertheless, the group’s structural overhaul to shift capital and power to new regional hubs should ensure that the group has an experienced regional management in place if the economic situation within China deteriorates. By removing overlapping layers of management, Standard hopes to cut more costs beyond the $1.8bn in savings over three years it announced recently. HSBC already employees the regional hub model. 

Unfortunately, Standard is already facing mounting losses from its exposure to commodity markets within Asia. It’s estimated that the bank will need to raise between £5bn and £10bn to cover non-performing loan losses and recapitalise the balance sheet after. As the prices of key commodities have only fallen further since this estimate was produced, the bank’s losses could be even greater than initially expected. 

The post Should You Be Worried About Standard Chartered PLC & HSBC Holdings plc’s Exposure To China? appeared first on The Motley Fool UK.

HSBC Holdings

Banking giant HSBC’s (LSE: HSBA) (NYSE: HSBC.US) share price has endured a torrid time in recent times, the stock having shed some 12% during the past two months alone. And with little wonder: uncertainty surrounding the firm’s future domicile status, and regulatory action over the actions of its Swiss units, right through to concerns of a blowout on the Chinese stock market and a eurozone economic implosion, have all smacked investor confidence.

Still, for dividend-hungry investors I reckon now could be a great time to do some bargain hunting at The World’s Local Bank. The City expects HSBC’s progressive dividend policy to keep rolling during the medium-term at least, and a payout of 50 US cents per share last year is anticipated to rise to 51.2 cents in 2015 and 52.8 cents in 2016. Thanks to the aforementioned recent share price weakness these figures create monster yields of 5.8% and 6% correspondingly.

While solid growth in the bottom line is expected to underpin these projections, a strong capital pile should also buttress the dividend — HSBC’s common equity tier 1 capital ratio rung in at a decent 11.2% during as of the close of March. And in the long term I believe rising wealth levels in critical emerging markets — and positive effect on banking product demand — should keep driving payouts higher.

Tate & Lyle

However, I am not so bullish over the investment prospects over at sugar house Tate & Lyle (LSE: TATE). Despite the prospect of a third annual earnings dip in 2015, the City expects the business to keep the dividend locked at 28p per share. And expectations of a solid bottom-line uptick next year is expected to propel the payment to 28.6p.

Of course, subsequent yields of 5.5% for this year and 5.7% for 2016 warrant serious attention. But I believe the prospect of crippling deflation in the sucralose market — Tate & Lyle sources around 20% of total profits from this one area — puts serious pressure on the firm’s earnings and subsequently dividend outlook. And with payments covered just 1.2 times by earnings through to the end of next year, in my opinion investors should be prepared for forecasts missing their target.

Evraz

Likewise, I believe that metals producer Evraz (LSE: EVR) is a stock not for the faint of heart as chronic oversupply in the steel industry crimps the balance sheet. The number crunchers currently expect the Russian firm to churn out dividends of 10.3 US cents this year and 12.6 cents in 2016, creating mammoth yields of 5.7% and 7.1% respectively.

But as Reuters reported last month, further deterioration in the steel price has forced Evraz to re-think its dividend policy. In addition, these pressures have also forced the business to put the kibosh on further share buybacks following April’s $375m cash return as a ‘challenging market‘ pressures the firm’s capital strength. With the steelmaker also fighting the impact of US and European sanctions on Russia, I reckon current payout estimates are likely to fall way, way short of estimates.

The post Should You Invest In These 5%+ Yielders? HSBC Holdings plc, Tate & Lyle PLC And Evraz plc appeared first on The Motley Fool UK.

Take, for example, wealth management firm, Rathbone (LSE: RAT). It has performed exceptionally well in recent years, with its bottom line growing at an annualised rate of 14.4% during the last five years. That’s around twice the growth rate of the wider index and, as a result, Rathbone’s shares have increased by 160% in the last five years.

Despite this, they still trade on a hugely appealing valuation. For example, they have a price to earnings growth (PEG) ratio of just 1.3 and this indicates that there is plenty more room for capital growth over the medium to long term. Of course, Rathbone’s business model is highly correlated to the performance of the wider index and a higher FTSE 100 means increased fees (and demand) from investors. But, with the long term outlook for the stock market being upbeat, Rathbone still looks like a great place to invest.

Similarly, HSBC (LSE: HSBA) (NYSE: HSBC.US) continues to come under fire from investors despite having an excellent balance sheet and superb consistency with regard to its bottom line. Unlike many of its peers, HSBC remained profitable throughout the credit crunch and, while its cost base is overly high, it appears to have the right strategy to tackle this problem in the coming years. As such, earnings growth of 21% is expected this year and, despite such a bright outlook, HSBC trades on a price to earnings (P/E) ratio of just 10.6.

Certainly, the Asian economy (to which HSBC has vast exposure) is not performing as well as the bank’s investors would hope. And, with the Chinese stock market enduring a volatile period, it is likely that doubts surrounding Chinese growth prospects will begin to surface. However, no period of rapid development in any country’s history was ever smooth and, while the Chinese growth rate may fall in future years, it remains the most appealing place to conduct banking activities for the long term.

Meanwhile, interdealer broker, Tullett Prebon (LSE: TLPR), continues to endure a rough patch. Its bottom line has fallen by 35% in the last four years as the banking crisis spilled over into its operations. Despite this, its outlook is relatively positive, with earnings growth of 6% being pencilled in for each of the next two years. And, with Tullett Prebon trading on a P/E ratio of just 10.8, it seems to offer good value for money at the present time.

Furthermore, Tullett Prebon remains a top notch income play. It currently yields an impressive 4.7% and yet only pays out around half of its profit as a dividend. So, looking ahead, its dividends should be relatively sustainable and also offer scope to rise in 2016 and beyond.

The post 3 Finance Stocks Worth Snapping Up Right Now! HSBC Holdings plc, Tullett Prebon Plc And Rathbone Brothers plc appeared first on The Motley Fool UK.

For a start, HSBC is an Asia-focused bank, and the group is planning to increase its Asian presence over the next decade. At the same time, HSBC is retreating from some European markets and other emerging markets around the world. 

On the other hand, Aviva is focused on growing its European presence but lacks a significant presence in Asia. Aviva’s business is growing rapidly within emerging markets like Poland and Turkey. 

What’s more, both Aviva and HSBC are recovery plays. HSBC is still trying to cut costs and streamline its operations as Aviva simplifies its business to concentrate on cash generation.

Restructuring

According to initial figures, HSBC is planning to slash around 8,000 jobs in the UK and a further 16,000 positions outside the UK to reduce costs. The group is planning to cut its global headcount by 10% overall. Further, HSBC is looking to sell its subsidiaries in Brazil and Turkey while the UK banking subsidiary is to be ring-fenced or spun-off. 

Overall, the group plans to cut approximately $5bn of annualised expenses over the next few years. At the same time, the bank will be investing in Asia, South East Asia in particular. Management is planning to expand HSBC’s asset management and insurance activities in the region.

So, HSBC could be a great play on Asia economic growth. Meanwhile, Aviva could be a great play on Europe’s aging population. 

Play on Europe

As one of the UK’s largest pension and savings providers, Aviva has economies of scale few other insurers can achieve. Under the new CEO, Mark Wilson, it seems as if the group has one primary goal; to build a strongly performing European composite insurer with good cash generation can one day fund a lot of growth further afield. 

The recent acquisition of Friends Life should only accelerate Aviva’s progress towards this goal.

Indeed, it’s estimated that Friends will boost Aviva’s cash flow by an additional £600m per annum. A sizable sum that should help reduce Aviva’s £2.8bn of internal debt owed by Aviva’s Life companies to the group’s General Insurance arm. Also, the extra cash flow, coupled with cost savings realized from the merger will Aviva to boost its dividend payout.

Aviva currently yields 3.7%, but City analysts believe that the company will hike the payout by 17% this year. Based on these forecasts the company’s shares will support a yield of 4.2% for full-year 2015. Further dividend growth is expected during 2016. Analysts expect Aviva to hike the payout another 17%, which should leave Aviva’s shares yielding 4.9%.

Income investment

HSBC is also an attractive income investment. The bank currently supports a dividend yield of 5.8%, and analysts believe that this yield figure is set to hit 6% next year. HSBC’s dividend payout is covered one-and-a-half times by earnings per share. 

The post Are HSBC Holdings plc And Aviva plc A Match Made In Heaven? appeared first on The Motley Fool UK.

Although the small size of Greece’s economy means that a default on its debts will have limited direct consequences on the rest of Europe’s economy; fears of contagion to the other indebted countries in Southern Europe is a very real risk. Europe’s leaders will likely do whatever it takes to prevent this from happening, but the lack of an immediate solution could cause further panic in the financial markets.

HSBC‘s (LSE: HSBA) exposure to Greece was $6 billion at the end of 2014. The bank had cut its Greek assets from $7.3 billion since the end of 2013, but its current exposure is the largest of all European banks outside of Greece itself.

It is of some comfort that the $2 billion in loans to Greece’s shipping industry is denominated in US dollars and has been booked in London. The shipping industry, which is more dependent on global economic conditions, is better insulated to developments happening in Greece. This means that HSBC’s exposure is smaller than what its headline figure suggests.

Even if much of its loans in Greece sour, HSBC’s strong capital position would mean that it could comfortable absorb the losses. But, that would still have a huge impact on earnings; which has already been weak, despite a tapering of loan losses at a low level. Its return on equity in 2014 was just 7.3%; and has been below its 10% target  in every year since 2007, except once in 2011. So although you may not sell shares in HSBC on Greek worries, you probably shouldn’t buy them either.

Of the British banks, RBS (LSE: RBS) is expected to have the second largest exposure to Greece. At the end of 2014, RBS had about £400 million in assets exposed to Greece, which is much less than HSBC. But, because of collateral and guarantees, its net exposure is only about £120 million.

The bank still has a long way to go in its recovery, but it is moving slowly, but surely in the right direction. Analysts expect earnings will be much improved this year, with forecasts for earnings per share (EPS) of 27.2 pence, which implies a forward P/E of 13.5.

Santander’s (LSE: BNC) exposure to Spain is its key drawback. Spain’s weak economic growth, its large fiscal deficit, reliance on foreign borrowings and the rise of left-wing populist party Podemos means that the country’s situation is very comparable to Greece.

On a positive note, Santander’s strong global retail banking franchise is highly efficient and relatively profitable. Its credit quality in Spain and Latin America is steadily improving; and its capital position is strong, having already raised capital earlier this year. So unless, Spain follows in Greece’s footsteps, Santander will continue to deliver on steady earnings growth.

Retail challenger bank, OneSavings Bank (LSE: OSB) has no direct exposure to Greece, and very limited exposure outside of the UK. Its fast growing loan book and low operating cost structure should mean the bank would prove to be resilient even with the uncertainties surrounding the Greece’s future.

Analysts expect EPS will grow by 29% this year, to 31.5 pence, which implies a very attractive forward P/E ratio of 10.1.

The post Should You Sell HSBC Holdings plc, Royal Bank of Scotland Group plc, Banco Santander SA & OneSavings Bank plc On ‘Grexit’ Fears? appeared first on The Motley Fool UK.

HSBC (LSE: HSBA), which trades at 11.2 times its expected 2015 earnings, may seem cheap at first glance; but the bank has a long way to go in reducing its high cost structure.

In its recently announced plan, the bank intends to cut up to 25,000 jobs, shrink the size of its investment bank by a third and sell its operations in Brazil and Turkey. This should bring in cost savings of about $5 billion annually, and will cost the bank up to $5 billion over the next two years to implement the plan.

The bank also intends to separate its UK retail banking business and drop the ‘HSBC’ brand from its high-street branches. But what does this mean for the self-proclaimed “world’s local bank”?

This is not the first time management has tried to tackle its high cost base. Since the financial crisis of 2007/8, the bank has retreated from peripheral markets and scaled back its retail banking business, but to no avail.

Because of higher regulatory and compliance costs, its cost efficiency ratio rose to 67.3% in 2014. Much more radical change is needed to make the bank cost competitive. And so far, we are not seeing enough of this.

Standard Chartered

Standard Chartered’s (LSE: STAN) exposure to commodities lending has been particularly problematic. Unlike HSBC, which continues to see loan impairments decline, Standard Chartered has had to dramatically raise its loan loss provisions. Loan losses could rise further, as commodity prices remain low, particularly for oil, coal, iron ore and copper. This has fuelled concerns about the bank’s capital adequacy and whether fresh equity would needs to be raised.

Longer-term prospects for the bank remain very attractive though. Its focus on Africa and Asia, two of the most attractive regions in the world (where financial markets are rapidly developing and where economic growth is fastest) makes Standard Chartered particularly appealing.

The uncertainty overhang of a rights issue will keep its valuation low. Investors will hold back from investing in Standard Chartered for fear of a capital call and/or potential dilution. So, it will probably be better to wait until after Standard Chartered announces its capital raising plans before investing in the bank’s shares.

Aberdeen Asset Management

Aberdeen Asset Management’s (LSE: ADN) focus on emerging markets led to significant net outflows for the fund manager over the recent years. However, with emerging markets nearing the bottom of the cycle, the fund manager is its seeing gross new business inflows recovering, even as net outflows continues.

Although investor sentiment may continue to be weak for emerging markets, it may be bottom out soon. The rally in Chinese equities in recent months and relatively stable markets across Asia may improve investor sentiment for the region. This will likely benefit Aberdeen Asset Management, which has a particular focus in the region.

Underlying EPS for the first half of its 2014/5 financial year rose 13% to 16.2 pence, and analysts expect the fund manager will see full-year underlying EPS rise 3% for 2015. This implies a very attractive forward P/E ratio of 12.7. With earnings seemingly past the worst of it, now might be the right time to buy shares in Aberdeen Asset Management.

The post Is It Time To Buy HSBC Holdings plc, Standard Chartered plc and Aberdeen Asset Management plc? appeared first on The Motley Fool UK.

Of course, neither of these reasons can be denied and life as an investor in bank shares has been tough. However, it’s time to reconsider the sector’s future potential, since at a time when the FTSE 100 is trading close to its all-time high and there are concerns about emerging market growth, the banking sector could provide the perfect mix of growth and value.

Take, for example, RBS (LSE: RBS) (NYSE: RBS.US). It is far from being back to full health and, in reality, is unlikely to do so for a number of years. However, this does not mean that its shares will not begin to price in its improved financial health in the meantime – especially as the government gradually reduces its stake in the coming years.

As such, and while RBS may still be struggling to post impressive growth numbers, its shares are worth buying for their turnaround potential and the prospect of an upward rerating. For example, RBS currently trades on a price to earnings (P/E) ratio of just 13.3, and this indicates that its share price could move higher over the medium term.

It’s a similar story with HSBC (LSE: HSBA) (NYSE: HSBC.US). Certainly, its exposure to the Far East may hold back sentiment in the meantime, with China enduring a prolonged soft landing. However, in the long run this position should work to the bank’s advantage and, in the meantime, a strategy shift has the potential to boost investor sentiment.

In fact, HSBC’s immediate future is set to be focused on reducing costs and generating efficiencies, since its operating costs have spiralled in recent years. And, as with RBS, there is significant upside built into its share price, with HSBC trading on a price to book (P/B) ratio of just 0.86. This shows that, while its margins may continue to be squeezed in the short run, HSBC offers significant upside in the long run, during which time it is likely to have successfully reduced its cost base.

Of course, there are banks with strong near-term prospects, too. A prime example is Virgin Money (LSE: VM), with its pretax profit set to rise from £34m last year to £205m next year. That’s a staggering rate of growth and shows that, while the likes of HSBC and RBS may have challenges to overcome in the short run, Virgin Money’s greater flexibility and more nimble business model could deliver exceptional profit growth.

Despite this, Virgin Money trades on a P/B ratio of just 1.6, which indicates that its shares are not expensive and that strong profit growth could lead to exceptional share price performance. As such, Virgin Money (alongside RBS and HSBC) appears to be well-placed to outperform the FTSE 100 over the medium to long term.

The post 3 Banks Set To Smash The FTSE 100: HSBC Holdings plc, Royal Bank Of Scotland Group plc And Virgin Money Holdings (UK) PLC appeared first on The Motley Fool UK.