Last year financial pundits were kept busy discussing what Brexit uncertainty meant for UK banking heavyweights Lloyds, Barclays and HSBC. That now seems small beer when considering the ultimate damage coronavirus will deal the economy, and company share prices.
With spiralling jobless claims, furloughed workers and businesses going bust, the virus has done substantial damage to the economy. A recession appears to be a near-certainty, with analysts now asking not when it will happen, but just how big it's going to be.
To support the economy, the government and Bank of England are looking at the banks to continue lending, underwriting loans with huge monetary and fiscal policies. This all comes at a cost. UK banks - including Lloyds, Barclays and HSBC - have agreed to suspend dividends and buybacks for 2019 and 2020 after pressure from the Bank of England. While this gives the banks an extra cushion to absorb costs during the current economic uncertainty, it has seen share prices continue to fall. After all, banking stocks are well-known for their hefty dividends.
This has led to a spate of slashed share price forecasts. Goldman Sachs has chopped their Lloyds share price target by 98%, along with trimming targets for Barclays and HSBC.
Lloyds share price target cut by Goldman Sachs
But even with these reduced targets and lack of dividends, are banking share prices now a bargain for long-term investors?
Lloyds share price
What's Goldman’s new price target for Lloyds?
32p - a 2% upside on Lloyds current share price.
What’s Goldman’s rating for Lloyds?
As a bellwether for the UK economy, Lloyds has a tough time ahead of it. The share price has been cut in half since the coronavirus outbreak began, while mortgage holidays and lower interest rates will damage revenues.
For investors, it's a matter of looking past 2020. A business efficiency programme and strong profits point to a robust business model, although the lack of a dividend is a concern. Lloyds had paid out a decent 3.21p a share in 2018.
Should dividends return and the economy gets back to some semblance of normality, Lloyds’ current share price is a bargain for long-term investors.
Barclays share price
What's Goldman’s new price target for Barclays?
150p - hitting this would see a 72% upside.
What’s Goldman’s rating for Barclays?
While suspending dividends is never a popular move among investors, holding on to capital may be a good thing considering the rocky months ahead. After all, any rise in loan defaults will first eat into profits, then revenue. Something Barclays is susceptible to through its BarclayCard product.
But it's Barclays’ investment management business that could provide short-term revenue as it is not reliant on interest income. This diversification puts it in a stronger position than other high street banks such as Lloyds.
HSBC share price
What's Goldman’s new price target for HSBC?
745p, which would see a 78% upside.
What’s Goldman’s rating for HSBC?
HSBC’s decision to suspend dividends wasn't popular with retail investors in Hong Kong, who consider the payout part of their income. Not only was this felt in the share price, but it has also reignited the debate about where HSBC should be based - the UK or Hong Kong.
HSBC gets four-fifths of its earnings from Asia and - more specifically - China. But the region has been one of the hardest hit by the coronavirus. This will inevitably slow the bank's 'pivot to Asia' strategy, which includes expanding private banking in China. HSBC's capital will also be under pressure as businesses in the region start to borrow to get through the current upheaval.
Like Barclays, HSBC has an investment business arm which should continue to bring in revenue in the short-term. However, this isn't a long-term solution.