HSBC Holdings plc vs Banco Santander SA: Which Bank Should You Buy?

If you could only buy one or the other, should it be HSBC Holdings plc (LON: HSBA) or Banco Santander SA (LON: BNC)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent announcement by HSBC (LSE: HSBA) (NYSE: HSBC.US) to axe around 8,000 jobs in the UK has put the bank back in the headlines. In fact, throughout much of 2015 it has received a considerable amount of press, with its decision over whether to quit the UK and move to Hong Kong stirring varied opinions among commentators and investors alike.

However, the two news items are entirely understandable. That’s because HSBC needs to do something about its cost base, which has spiralled to an all-time high (at the operating level) at a time when many of its rivals have successfully cut costs in recent years. As such, the next few years seem likely to be a period of upheaval for the bank, which should see it emerge as a more efficient, slimmer and more profitable entity.

Growth Potential

In fact, HSBC is expected to grow its bottom line by an impressive 19% in the current year, followed by further growth of 5% next year. And, looking beyond the next couple of years, there is scope for further strong growth numbers. That’s especially the case since China is expected to continue to adopt a looser monetary policy in the coming years, as it seeks to boost its growth rate and overcome the ‘soft landing’ that has been a feature of its economy in recent years. And, with its vast exposure to Asia, HSBC could be a major beneficiary of such a move.

Valuation

Despite such a bright future, investors are still wary regarding HSBC’s prospects. This is, of course, understandable since HSBC is undergoing a period of intense change that, arguably, has been completed by many of its peers in recent years. In other words, because HSBC performed relatively well during the credit crunch, it was not forced into making efficiencies or changes to its business model to the same extent as a number of its sector peers, and so it could be argued that it is one step behind in this respect.

And, this transitionary period is reflected in HSBC’s current valuation, with it trading on a price to earnings (P/E) ratio of 11.4 which, when combined with its growth prospects, equates to a price to earnings growth (PEG) ratio of just 0.6.

Sector Peer

Clearly, there are a number of appealing alternatives to HSBC within the banking sector. One bank that appears to be worth buying right now is Santander (LSE: BNC) (NYSE: SAN.US). It recently conducted a placing to shore up its finances and appears to be on a sound financial footing, while also offering a high level of regional diversity that surpasses many of the UK-listed (and UK-focused) banks. As such, like HSBC, Santander should prove to be a resilient and relatively robust performer.

Furthermore, Santander offers similar growth prospects to HSBC over the next couple of years, with its bottom line set to rise by 12% in each of the next two years. However, where it is less appealing than HSBC is with regard to its rating, with Santander trading at a premium to the Asia-focused bank, with it having a P/E ratio of 12.4 and a PEG ratio of 1.

As such, and while both banks have bright futures, HSBC appears to offer better value for money. Certainly, the next couple of years are likely to see considerable change enacted at the bank, but for long term investors HSBC remains a hugely appealing buy at the present time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »