The FTSE 100 index has come a long way from the stock market crash. It’s now 27% higher than it was at the lowest point on March 23. While the rally has benefited many stocks, some of the biggest banks, like Lloyds Bank (LSE: LLOY) and HSBC (LSE: HSBA) have been effectively left behind. The Lloyds Bank share price has risen only 7% from the lowest point of the crash, while the HSBC share price is actually 21% down since that day.
LLOY appears to be a better buy than HSBA based on this trend. At least the Lloyds Bank share price has started picking up. Investors are losing confidence in the HSBC share price. But that’s just the here and now. Over the longer term, I reckon HSBC is a better bet for its track record, if nothing else.
HSBC share price vs Lloyds Bank share price
Consider the stock market crash of 2008, which reached its lowest point in early 2009. The HSBC share price had plunged then as well, but by the end of 2009 it had already recovered much of its value. Since then, it has repeated this pattern of rising steadily after a plunge multiple times. By comparison, the Lloyds Bank share price has never come close to the levels last seen during the financial crisis.
If I were to make an investment call between the two based only on this trend (which I wouldn’t, but I’m mentioning here for the sake of argument), I’d buy HSBC purely because it’s more likely to bounce back. Lloyds Bank, not so much. Ideally, I wouldn’t want to invest in banks at all at this time, but between the two, HSBC is my choice.
Underlying reasons for HSBC’s weakness
I also believe that some underlying reasons for the HSBC share price weakness can be overcome. Here are the reasons. First, the stock market crash impacted it. Second, the Bank of England also asked commercial banks to suspend dividends, which made them unattractive to income investors. Third, its poor financial update released at the end of April shook investor confidence further. Fourth, in early May it said that it’s acquiring a 100% stake in its Chinese life insurance business. The financing sources for the buy are undisclosed, which may also have knocked off investor confidence. And fifth, a few days ago, it resumed its plan to cut 35,000 jobs.
The first three reasons can be overcome as the economic situation improves. The next two need to be seen as part of its larger restructuring plan to make the bank more profitable. I think a bigger role in the Chinese insurance market is a strategic move, in a large and growing economy. It had planned to shed jobs as part of its plan even before coronavirus struck, so it’s not a new development. I’m less sure of the Lloyds Bank share price, because the bank is concentrated in the UK and is vulnerable to a no-deal Brexit. It also seems to be driven by momentum, rather than its future prospects.