I just lately offered my Lloyds (LSE: LLOY) shares and used a part of the proceeds to purchase HSBC (LSE: HSBA) inventory.

There have been 4 key causes for this and coming up to the top of Q2, I checked how they stack up now.

Massive distinction in price volatility threat

Lloyds trades an excessive amount of like a ‘penny share’ for my liking. Strictly talking, it isn’t one, as though it’s priced at lower than £1, its market capitalisation is big.

Nonetheless, at simply 55p a share, each penny it strikes represents almost 2% of its worth.

By sharp distinction, HSBC trades at £6.83 a share at present, so every penny motion is simply 0.1% of its worth.

That is one class win for HSBC, in my opinion.

Main valuation hole

This turns into much more essential within the context of how a lot worth is left in every’s shares. The nearer they’re to their honest worth, the extra probability there’s of a major price reversal.

Lloyds presently trades on the important thing price-to-earnings (P/E) share valuation measurement at 7.4. That is overvalued towards the UK peer group common of seven.1

HSBC trades precisely on the common, so seems pretty valued on this measure.

Nonetheless, each shares are undervalued towards the 7.8 P/E common of their European peer group.

Utilizing a reduced money stream analysis, Lloyds shares are at present round 14% undervalued total. On the identical foundation, HSBC shares are about 54% undervalued.

This suggests a good worth for Lloyds shares of 64p, and for HSBC of £14.72.

This doesn’t assure that both will obtain these ranges. Nonetheless, it confirms to me that rather more worth is to be present in HSBC shares.

One other win for it over Lloyds, I believe.

Comparable enterprise outlook

A key threat for each banks is declining internet curiosity margins (NIMs) as UK inflation and rates of interest fall. The NIM is the distinction between the curiosity a financial institution receives on loans and the speed it pays for deposits.

An added threat for Lloyds is authorized motion for mis-selling automotive loans by its Black Horse insurance coverage operation.

Consensus analysts’ forecasts are that Lloyds income will develop at 3.2% a yr to end-2026. Over the identical interval, HSBC’s income is anticipated to rise by 3.5% a yr.

There may be not enough distinction to separate the 2 right here, in my opinion, so the class is drawn.

Large distinction in dividend payouts

Lloyds at present yields 5%, and HSBC 7%. The distinction over time in dividends from the 2 charges is gigantic.

£10,000 invested in Lloyds 5%-yielding shares — with the dividends reinvested — would make an additional £34,677 after 30 years.

On the identical provisos, HSBC would give me a further £71,165!

One other main win for HSBC, in my opinion, making three out of 4, with one tied.

Consequently, if I had not already offered Lloyds inventory and purchased HSBC’s, I’d do it proper now.