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.
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.