UK Bank Shares Raised, Analyst Prefers Barclays Over HSBC (BARC, HSBC)

Morgan Stanley has increased its price targets for both Barclays (LON:BARC) and HSBC (LON:HSBA), but the analyst firm is signaling a preference for Barclays shares at current levels. The move reflects differing outlooks on the two banking giants following recent earnings reports.

• Barclays Preferred: Morgan Stanley analyst Alvaro Serrano maintains an Overweight rating on Barclays while the firm keeps HSBC at Equal Weight, indicating a preference for Barclays shares.
• Larger HSBC Price Target Increase: Despite the preference for Barclays, HSBC saw a larger percentage increase in price target (+21.0% vs +3.9%).
• Recent Performance: Barclays shares have outperformed HSBC over the past 12 months (+60% vs +31%).
• Earnings Momentum: Barclays recently reported strong Q2 results with pre-tax profit up 24%, while HSBC saw a 29% decline in Q2 pre-tax profit.

Barclays' price target was nudged up to 400p from 385p, with an Overweight rating maintained whilst HSBC's target saw a more substantial increase to 1,024p from 846p, yet the rating remains at Equal Weight.

HSBC shares Drop on Earnings

HSBC shares fell 4. 5% yesterday following the release of its first-half results, and continues to move lower, down 0.4% at 922p this morning. Despite the recent volatility, HSBC shares are up 31% over the past year and a remarkable 169% over the last five years (excluding dividends).

HSBC's Q2 pre-tax profit declined 29% year-on-year to $6.33 billion, bringing the total H1 pre-tax profit down 27% to $15.8 billion. This fell short of analyst expectations, primarily due to a $2.1 billion impairment on its Chinese stake and increased credit losses, particularly in Hong Kong's real estate sector.

Revenue for Q2 was $16.47 billion, slightly down year-over-year, while expenses rose 10% to $8.92 billion. The bank's CET1 ratio currently stands at 14.6%.

To bolster investor confidence, HSBC announced a new $3 billion share buyback program, complementing its quarterly dividend of 10 cents per share, which translates to a forecasted full-year yield of 5.2%.

Barclays Moves Higher on Earnings

Barclays, on the other hand, has seen its share price surge, hitting its highest level since 2008 following robust Q2 results. The stock is up 59% over the past 12 months and an impressive 270% over five years, marking a significant recovery since the pandemic.

Barclays reported a 12% year-over-year increase in income for the first half of 2025, reaching £14.9 billion. Pre-tax profit jumped 24% to £5.2 billion. Q2 pre-tax profit clocked in at £2.5 billion, exceeding expectations. Net income for Q2 rose 34% year-over-year to £1.66 billion ($2.22 billion). The bank also announced a second £1 billion share buyback for the year.

Barclays' strong performance is attributed to both its investment banking income, which reached £7.2 billion for H1, and its capital returns, with a 21% year-over-year increase in H1 capital distributions.

The bank's technical momentum appears strong, with the share price trading above key moving averages, indicating an upward trend.

After Morgan Stanley's latest revisions, the firm's perceived upside in HSBC of ~10% actually outpaces that to Barclays' new target ~6.7%. Despite the difference in rating, and sentiment, there could be further changes as the recent financials are digested and built into models.