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There’s no shortage of undervalued FTSE 100 stocks to choose from today. But which of these two banking giants could be the better share to consider as summer kicks off? Let’s take a look.
Lloyds Bank
Lloyds‘ (LSE:LLOY) share price has rocketed more than 40% since the start of 2025. Yet concerns over weak economic conditions and multi-billion-pound misconduct charges means it still looks dirt cheap on paper.
The bank trades on a forward price-to-earnings growth (PEG) ratio of 0.6. A figure below 1 indicates a share is undervalued. Meanwhile, a 4.4% dividend yield beats the Footsie average by around a percentage point.
Hopes over sustained interest rate cuts continue to propel Lloyds’ shares higher. Further Bank of England-induced interest rate reductions might help kick-start economic growth, boosting credit demand from businesses and consumers.
Its effect could be especially beneficial for homes sales and therefore mortgage uptake, a key area for the company. Lloyds’ market share here stands at around 19%.
Despite a recent inflationary uptick, I’m confident interest rates will keep falling over the year and into 2026. But this doesn’t necessarily mean a ‘net win’ for the banks.
Falling rates are a double-edged sword, as they also weigh on net interest margins (NIMs). This is the difference between what the likes of Lloyds charge borrowers and pay to savers. The Black Horse Bank’s margins are already under threat as competition rises across its product lines.
I’m also concerned about the prospect of rising impairments as the UK economy struggles. During Q1, the company’s underlying impairments soared to £309m from £57m the year before.
My biggest fear however, relates to the possibility of crushing penalties if the bank’s found guilty of mis-selling car finance. Some believe the £1.2bn it’s set aside for such a scenario could be a drop in the ocean. A crisis on the scale of the historical PPI scandal could prove catastrophic for Lloyds’ share price along with its dividend.
HSBC
Largely speaking, Asia-focused HSBC (LSE:HSBA) faces the same opportunities and threats as Lloyds right now. While it’s not dependent on the UK to drive earnings, it has considerable exposure to China where economic conditions remain tough and is vulnerable to escalating trade wars.
However, I think the emerging market bank is a far more attractive proposition to consider. Despite difficulties on the ground, the performance of its core units remain resolute. Underlying revenues and pre-tax profit increased 7% and 11% respectively in the opening quarter.
Profits beat forecasts by mid-teen percentages, even though impairments ticked up year on year.
Today, HSBC shares trade on a forward price-to-earnings (P/E) ratio of 8.8 times, beating Lloyds’ shares (10.9 times) by a healthy margin. The bank’s dividend yield is 5.7%, also a healthy distance above its FTSE 100 peer.
However, its PEG ratio of 1.3 is less impressive. But, on balance, I think it’s the more attractive blue-chip bank to consider today.
Its share price is up 11% in 2025 so far and has further scope to rise, driven by surging banking product penetration from current low levels. And unlike Lloyds, it doesn’t have a potentially costly motor finance investigation to tackle. Of the two, I much prefer it.
