The Lemon Fool

In realising cash for a prospective house purchase, I'll be looking to dispose of one of my banking holdings. Any thoughts on which?

• HSBC, with global exposure and which has performed adequately (with decent income) over the time I've held, but is exposed to serious Trump-risk?
• Or much-more-local Lloyds, which I bought too early looking for a recovery that still hasn't happened and is exposed to serious brexit-risk?

For what it is worth I would be inclined to keep HSBC, although you could cover your bet by taking 50% of the required funds from both.

I do not like Lloyds exposure to the one market only.

Dod

UncleEbenezer wrote:In realising cash for a prospective house purchase, I'll be looking to dispose of one of my banking holdings. Any thoughts on which?

• HSBC, with global exposure and which has performed adequately (with decent income) over the time I've held, but is exposed to serious Trump-risk?
• Or much-more-local Lloyds, which I bought too early looking for a recovery that still hasn't happened and is exposed to serious brexit-risk?

I think you have summed it up much as I would see it.

I like the idea of HSBC (which I hold) for its global and particularly far eastern exposure, and non-sterling earnings. Dividend quoted in dollars. Risk from Trump's trade wars with China.

Lloyds being a domestic bank I see as being primarily linked to the fortunes of the UK and the UK property market, the future of which looks rather depressed currently, though Lloyds has the more positive broker recs and lower PE of the two. Presumably seen as a recovery opportunity, post Brexit.

I am a holder of Lloyds, but sold out HSBC some time ago. I see it as a recovery play. It might even recover a bit on no deal although I would expect a bit of turmoil and a movement below 50p if we were facing no deal. Its difficult to trade on, however.

Rather than pick the least loved bank, have you looked at it from the viewpoint of what it would do to the balance in the remainder of your portfolio?

If selling Lloyds would make you light UK, or selling HSBC would make you light foreign earnings, that would play a bigger part in the decision (to my mind) than trying to guess which of the two has a brighter prospect.

A half sale of each might avoid the dilemma altogether, or at least separate the house purchase from the portfolio structure issue.

VRD

If 2008 taught me anything, it was to avoid holding too much of any one bank. The ideal number of banks in my portfolio is zero.

vrdiver wrote:Rather than pick the least loved bank, have you looked at it from the viewpoint of what it would do to the balance in the remainder of your portfolio?

If selling Lloyds would make you light UK, or selling HSBC would make you light foreign earnings, that would play a bigger part in the decision (to my mind) than trying to guess which of the two has a brighter prospect.
VRD

An interesting point, which made me think - the OP is putting the money into a house purchase. Which share is closer tied to his actual purchase? If the UK housing market crashes, leaving the OP with negative equity, then it at least there might be some comfort in having a less correlated HSBC

torata

Thanks everyone for your thoughts. You've kind-of reinforced my own thinking and consequent uncertainty.

Replying to a couple of specific well-made points:

torata wrote:

vrdiver wrote:Rather than pick the least loved bank, have you looked at it from the viewpoint of what it would do to the balance in the remainder of your portfolio?

If selling Lloyds would make you light UK, or selling HSBC would make you light foreign earnings, that would play a bigger part in the decision (to my mind) than trying to guess which of the two has a brighter prospect.
VRD

Neither of those is a strong concern: I do have quite a lot of global exposure, principally through managed funds (ITs and OEICs). I'm trying to maintain a balance principally through those. But that thought process is where I realised: planning disposal of several no-longer-loved individual FTSE shareholdings leaves me hopelessly overweight banks if I don't include one of those in my disposals.

An interesting point, which made me think - the OP is putting the money into a house purchase. Which share is closer tied to his actual purchase? If the UK housing market crashes, leaving the OP with negative equity, then it at least there might be some comfort in having a less correlated HSBC

torata

Whilst a financial loss on the house is indeed likely (well, a certainty in the short term), negative equity is not a risk without a mortgage. Nevertheless, your point is kind-of what's bugging me. But for that, I'd be inclined to say, the case for Lloyds remains what it was when I bought (a value share and a recovery prospect) whereas HSBC is more fully-valued and could go. But Lloyds+House is, as you say, not so great for balance.

For the record, the house is to live in. Purely in investment terms it looks like a backward step, as the rent it saves me is less than the dividend income it loses, at least when we're looking at high-yielding investments like bank shares.

It’s tricky to decide if the joys of home-ownership are worth reallocating capital. Factor in maintainance expenses and big up front frictional costs and it starts to look quite unappealing. Plus the wife gets expensive ideas about decorating. Have you seen the cost of new curtains...

We have quite high exposure to Lloyds but mainly through their Prefs LLPC & LLPD.

Overall we have too much in Financials, and as it become harder to make money from conventional banking, what with Govt interference and low rates, one sees the banks zealously recreating past problems with overgenerous mortgage lending and no doubt other foolishness of which one is less aware.

I am therefore resistant to the temptations of HSBC or indeed any further sector exposure .

JoyofBrex8889 wrote:... the wife gets expensive ideas about decorating. Have you seen the cost of new curtains...

Sewing machines are cheap, so that's the next birthday present sorted .

V8

88V8 wrote:

JoyofBrex8889 wrote:... the wife gets expensive ideas about decorating. Have you seen the cost of new curtains...

Sewing machines are cheap, so that's the next birthday present sorted .

V8

Good luck! https://www.sewingmachines.co.uk/produc ... rcQAvD_BwE

VRD

I still hold Lloyds, HSBC and Barclays. For years they have looked cheap based on the profit recovery just round the corner. Trouble is that recovery keeps receding.

The other worry I have about bank shares is that new tech disruptors could easily cherry pick their business and eventually completely replace them. This has started already with foreign exchange and money transmission. I can't see why it won't spread to all their activities? They have massive overheads that tech competitors don't have.

Lastly if a Corbyn Gov came to power the banks would be in even deeper trouble

scrumpyjack wrote:I still hold Lloyds, HSBC and Barclays. For years they have looked cheap based on the profit recovery just round the corner. Trouble is that recovery keeps receding.

Indeed, selling both holdings is an option

The other worry I have about bank shares is that new tech disruptors could easily cherry pick their business and eventually completely replace them. This has started already with foreign exchange and money transmission. I can't see why it won't spread to all their activities? They have massive overheads that tech competitors don't have.

Indeed, we could have seen a much more rapid rise in a wider range of new/disruptive alternatives if the government of the day hadn't bailed out Sir^H^H^H Fred's pension.

Lastly if a Corbyn Gov came to power the banks would be in even deeper trouble

Why? You think Corbyn would pay more than lip service to stopping the big profit centres like money laundering? Surely his own party won't let him!