Despite the challenges posed by the pandemic, bank stocks have performed better than many would have expected. This means that the Lloyds (LSE: LLOY) share price has risen over 70% since its lows last September and the HSBC (LSE: HSBA) share price has risen around 50% in the same period. Such a strong performance has been enabled by resilient earnings, a return to dividend payments and the quick vaccine rollout. But there are still problems for both of these bank stocks, such as the low interest rates. As such, should I buy either of these stocks, or are there still too many risks?
The Lloyds share price
Lloyds’ fourth quarter earnings were significantly better than many had expected. Indeed, the bank reported underlying profits of £1.3bn, which was only a drop of 15% from the previous year. In the tough economic circumstances, this is a strong performance and explains the rise in the Lloyds share price.
The bank also announced a dividend of 0.57p per share, which is the maximum allowed under the Bank of England’s current restrictions. It also signalled an intention to resume share buy-backs at the end of the year, highlighting a “very strong capital position”. Increased shareholder returns bodes well for the Lloyds share price and indicates that the future looks brighter.
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Nonetheless, there are still a couple of risks to highlight. Firstly, after a decade in charge, António Horta-Osório is leaving Lloyds, being replaced by Charlie Nunn. Although change may help bring a new direction and new ideas, there is also the risk that new management can disrupt the business. For now, it is very hard to judge which way it will go. Secondly, the Lloyds share price has risen due to the increased optimism of a full economic recovery. If Covid cases are to start rising again, as seen in some other countries, Lloyds will probably be one of the big fallers.
Despite these challenges it still faces, I believe that Lloyds will be able to recover further throughout 2021. I would happily add this stock to my portfolio.
HSBC shares
With greater exposure to Asia, HSBC is a very different kind of bank to the UK-focused Lloyds. However, in previous years, it has underperformed, in part due to a lack of clear focus. Change does seem incoming at the moment, driven by Chairman Mark Tucker and CEO Noel Quinn.
As part of the changes, management is further targeting Asia for growth, which includes transferring as much as $100bn of assets to this region. The bank has also announced that it will further shrink in Europe and the US. These radical changes will hopefully be accompanied by rising profits.
However, I’m still not convinced. With the bank remaining committed to being headquartered in London, I feel there is still a lack of focus. Geopolitical tensions, especially in China, also remain a problem, and this may disrupt business for the bank. For these reasons, I’m staying away from HSBC shares.
