Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Is Now The Time To Get Back Into FTSE Banks And Their U.S. Counterparts?

By Investing.com (Tezcan Gecgil/Investing.com )Stock MarketsSep 02, 2020 05:59AM ET
www.investing.com/analysis/is-now-the-time-to-get-back-into-ftse-banks-and-their-us-counterparts-200536041
Is Now The Time To Get Back Into FTSE Banks And Their U.S. Counterparts?
By Investing.com (Tezcan Gecgil/Investing.com )   |  Sep 02, 2020 05:59AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Has the time come to show faith in big UK banks?

Banking is a cyclical industry. The COVID-19 pandemic is expected to lead to a large number of bad loans, and banks have had to set aside considerable amounts of money for them. Low interest rates are also straining profits. The lower the interest rate, the less a bank makes on its lending, while profit margins on the loans provided get squeezed.

Year-to-date, the FTSE 100 is still down more than 20%. Yet, the banking sector has taken even a more dramatic fall. HSBC Holdings (LON:HSBA), (NYSE:HSBC) is the largest of the five banking groups by market value listed in the FTSE 100, the UK's main equity index. The others are Lloyds Banking Group (LON:LLOY), (NYSE:LYG), Barclays (LON:BARC), (NYSE:BCS), NatWest Group (LON:NWG), (NYSE:NWG) and Standard Chartered (LON:STAN), (OTC:SCBFF).

Here's how these five banks fared so far in 2020:

  • HSBC: down 47%
  • LLOY: down 46%
  • BARC: down 41%
  • NWG: down 54%
  • STAN: down 29%

These declines highlight investor sentiment in banking shares remains fragile. In fact, the sector has been one of the most volatile and worst-performing in the UK for close to two decades. Yet, many investors included banks in their portfolios until earlier this year due to their relatively high dividends.

But on March 31, the Bank of England's Prudential Regulation Authority (PRA) requested all UK-based banks suspend plans to return money to shareholders. Thus, they won't be paying dividends or buying back shares, at least for the time being.

Here's a closer look at HSBC Holdings to see if it deserves your attention this fall.

HSBC Is A Global Bank

The group is one of the world's largest financial organizations. While HSBC is headquartered in London, about three-quarters of its profits comes from corporate clients in Asia. It also has substantial operations in the UK, as well as the European Union.

A bank's fortunes are closely tied to the economic health of its main markets. In the case of HSBC that would be China, including Hong Kong. Investing decisions should, in part, be based on developments about this important region.

HSBC's deep roots in Hong Kong date back to the 1860s. Therefore, any critical Hon Kong-based news will affect investor sentiment in the shares. For example, in recent weeks, it has publicly supported the national security law imposed by China in Hong Kong. That stance has stirred a big debate as many wonder if the board would eventually have to choose between business in the West and operations in Asia.

Furthermore, over the past few years, the global bank has been caught in the middle of the tense U.S.-China relations, which are likely to remain volatile, especially in the final stretch of the U.S. Presidential election.

HSBC Holding PLC.
HSBC Holding PLC.

In early August, HSBC released interim results for the half-year ended June 30. The numbers raised eyebrows as pre-tax profits fell by 65% to $4.3 billion (around £3.2 billion). The number was much steeper than analysts' forecast. Bad loans linked to the pandemic could reach $13 billion (£9.7 billion).

Profits in the U.S. and Europe were adversely affected, while performance in Asia remained more resilient. Management will also speed up plans for cutting 35,000 jobs from its 235,000-strong workforce. The bank is in the middle of a significant restructuring of its global banking operations. It will, for example, close a third of its 200-plus branches stateside. Finally, HSBC provided a subdued outlook for the rest of the fiscal year.

At this point, we'd not rushing to buy HSBA stock. However, we'd reevaluate the fundamentals if the price goes toward, or even under 300p, a level last seen in 1995 (in U.S.-listed shares, we'd find more value below $20). The current forward P/E and P/B ratios stand at 18.48 and 0.48, respectively. A further share price decline of around 7%-10% would improve the margin of safety.

Bottom Line

Banks have been out of favour in the UK for many years, but especially in 2020. Yet, if we were to invest in a UK-based banking stock now, we'd go for Barclays, whose investment banking arm currently provides strength. Despite the current headwinds in the sector, trading profits at its investment bank have risen in recent months.

Its results are similar to those released by Goldman Sachs (NYSE:GS), which recently reported its second-highest revenue ever. GS stock has been an outperformer among U.S.-based banks. In the coming weeks, we'll take a closer look at Barclays and other global names in the sector.

Is Now The Time To Get Back Into FTSE Banks And Their U.S. Counterparts?
 

Related Articles

Gary S. Morrow
Jets Are Lifting By Gary S. Morrow - May 14, 2021

We sure like this Alaska Air Group (NYSE:ALK) chart. There is solid footing underneath ($63.65). The daily MACD is back to neutral despite shares trading fairly close to the 2021...

Is Now The Time To Get Back Into FTSE Banks And Their U.S. Counterparts?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Raymond Chan
cmray168 Sep 02, 2020 7:40AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You can try, never says never.
Robert Tullai sr
Robert Tullai sr Sep 02, 2020 4:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how is it all about because i don't understand
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email