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Lloyds v HSBC?

FredBloggs
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Lloyds v HSBC?

#100686

Postby FredBloggs » December 2nd, 2017, 2:25 am

Taking a look at Lloyds Banking Group and HSBC this morning. I know LLOY has become a bit of a favourite recently in some quarters. But, has the toxicity really been purged out of LLOY? LLOY stock is down around 19% over three years and the yield (from HL) is 3.9%. In contrast, HSBC has gained 17% in the same time frame. LLOY is strongly UK focused (Brexit concerns etc...) whilst HSBC is widely diversified internationally. What surprises me though is the according to HL the yield on HSBC is much higher than LLOY at 5.5%. These seems very odd. What am I missing here? Surely HSBC is a far less toxic proposition than a reformed Lloyds?

http://www.hl.co.uk/shares/shares-search-results/l/lloyds-banking-group-plc-ordinary-10p

http://www.hl.co.uk/shares/shares-search-results/h/hsbc-holdings-plc-ordinary-usd0.50

Raptor
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Re: Lloyds v HSBC?

#100702

Postby Raptor » December 2nd, 2017, 8:23 am

I hold both, for same reason. HSBC is the less of a chance of "toxicty" but Lloyds (IMO) has made massive moves in right direction. Only time will tell, but with a "foot" in both camps, will be pleased either way.

Raptor.

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Re: Lloyds v HSBC?

#100705

Postby YeeWo » December 2nd, 2017, 8:41 am

FredBloggs wrote:What surprises me though is the according to HL the yield on HSBC is much higher than LLOY at 5.5%. These seems very odd. What am I missing here? Surely HSBC is a far less toxic proposition than a reformed Lloyds?

- The correlation between Yield and Toxicity of assets doesn’t seem very clear to me.
- HSBC is many multiples of the value of Lloyds. EM exposure also, Lloyds is a bet on UK.
- IIRC 70%+ of HSBC revenue is generated in Greater China.
- IF £ rises in light of a workable Brexit this may work against U.K. HSBC holders as the dividend is declared in $.
- I hold HSBC only and have done for years. Global diversification and nice quarterly payouts!

FredBloggs
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Re: Lloyds v HSBC?

#100718

Postby FredBloggs » December 2nd, 2017, 9:47 am

YeeWo wrote:
FredBloggs wrote:What surprises me though is the according to HL the yield on HSBC is much higher than LLOY at 5.5%. These seems very odd. What am I missing here? Surely HSBC is a far less toxic proposition than a reformed Lloyds?

- The correlation between Yield and Toxicity of assets doesn’t seem very clear to me.
- HSBC is many multiples of the value of Lloyds. EM exposure also, Lloyds is a bet on UK.
- IIRC 70%+ of HSBC revenue is generated in Greater China.
- IF £ rises in light of a workable Brexit this may work against U.K. HSBC holders as the dividend is declared in $.
- I hold HSBC only and have done for years. Global diversification and nice quarterly payouts!

Honestly, to me this is a disparity between a globally diversified (but Asia focused) business paying 5.5% divi and a bank emerging from near bankruptcy and almost terminal toxicity paying 3.9% and is also a big bet on the Brexit outcome. Likewise, I guess HSBC is a bet on China and Asia generally. The trend over the last 30 years has been clear who has "won" economically in the east v west stakes. Am I wrong or is there a fundamental reason for the divi of HSBC to be more than LLOY? I can't see it.

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Re: Lloyds v HSBC?

#100737

Postby GoSeigen » December 2nd, 2017, 10:21 am

Raptor wrote:I hold both, for same reason. HSBC is the less of a chance of "toxicty" but Lloyds (IMO) has made massive moves in right direction. Only time will tell, but with a "foot" in both camps, will be pleased either way.

I'm also in the "both" camp. I've no idea which will be the better performer but am not that bothered. I just add to one or the other when I sense the price is depressed.

Buying many banks on a similar basis.


Perhaps the HSBC dividend yield is higher then Lloyds's because it is believed the latter's dividend will rise faster in the future?


GS

FredBloggs
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Re: Lloyds v HSBC?

#100755

Postby FredBloggs » December 2nd, 2017, 11:30 am

GoSeigen wrote:
Raptor wrote:I hold both, for same reason. HSBC is the less of a chance of "toxicty" but Lloyds (IMO) has made massive moves in right direction. Only time will tell, but with a "foot" in both camps, will be pleased either way.

I'm also in the "both" camp. I've no idea which will be the better performer but am not that bothered. I just add to one or the other when I sense the price is depressed.

Buying many banks on a similar basis.


Perhaps the HSBC dividend yield is higher then Lloyds's because it is believed the latter's dividend will rise faster in the future?


GS

The bit that confuses me there, is that LLOY has declined by 19% and HSBC has gained by 17% in the same timescale. May be I shouldn't think any more deeply and just accept that, to me, looking for a cash cow to go alongside my Regional REIT and my National Grid shares, then HSBC meets the requirements in terms of yield and offers some diversification away from Brexit fall out issues. Maybe, even an upside if GBP falls again against EUR and other currencies as the big day approaches in march 2019.

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Re: Lloyds v HSBC?

#100757

Postby LongbeardRanger » December 2nd, 2017, 11:32 am

Firstly, on my preferred measure of price/deposits these two companies measure as follows:

Lloyds: c11%
HSBC: c15%.

So, at least by that measure, Lloyds is quite a bit cheaper than HSBC. (Why price/deposits? Basically because it's access to cheap funds, in the form of core customer deposits, that is the key to a bank's ability to generate value. On the lending side of the balance sheet, a bank is little more than a commodity provider of money, but on the liability side, banks can and do have access to stable, very cheap funding for which they face remarkably little competition. That is the true source of economic value in a bank, so that is how I measure value. )

Of course, there's also growth to take into account. HSBC certainly seems to be in better markets from a growth perspective. There again, HSBC's business seems a lot more complex and difficult to manage, to me. Lloyds is concentrated in one, relatively stable, market. HSBC is operating across multiple jurisdictions, with different legal and regulatory regimes, currency exposures, market structures, etc. I would need to do a lot more work to get comfortable with HSBC than I would with Lloyds.

Overall, while I don't hold either of these stocks, I have looked at Lloyds quite hard and would be happy to own it. HSBC for me is quite a lot harder to understand properly, so I can't see it being likely that I'll invest in it any time soon.

(Incidentally, on toxicity, Lloyds seems to be reducing its toxicity quite substantially, which I think is the market perception also. Going forward it seems to me no more or less probable that there will be toxicity issues at HSBC than at Lloyds.)

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Re: Lloyds v HSBC?

#100794

Postby Dod101 » December 2nd, 2017, 1:27 pm

I think that the comments by LongbeardRanger have some merit although I do not quite understand his price/deposit percentages. It is not so long of course since Lloyds yield was nil and it is slowly creeping up whereas HSBC has simply held its dividend for the last couple of years or so. Still under the control of the US banking authorities that is certainly one concern as they have to be especially careful not to get into trouble again with regulators or whatever because HSBC itself is emerging from a fairly rocky time in that regard and I do not think that investors are yet ready to give it the benefit of lingering doubts. Despite big share buybacks the share price has only just been creeping forward so that would suggest that there are many at least at the margin who are not long term holders.

Personally I am inclined to think they will be a good bet over the next few years and with a new chairman from outside of the Bank for the first time we may see a slightly more aggressive approach.

It is a much more complicated bank to manage I am sure than Lloyds about which I do not know a lot. I think though the comments about funding are irrelevant as HSBC was one of the very few banks which continued to be a net lender to the market throughout the financial crisis and I doubt that it has ever been a borrower in the market. I think it lends less than 80% or so of its deposits.

I have held HSBC since around 1991 and used to hold Lloyds but sold in January 2008 and have never bought back in again.

Personally I think Sid can easily identify with Lloyds and see it in recovery mode whereas they are not sure about HSBC, nor about where its dividend is going.

Dod


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