HSBC Holdings plc: Are The Rumours True?

There are plenty of rumours surrounding HSBC Holdings plc (LON: HSBA) but which ones might be true?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Like all big companies, there’s a constant supply of rumours surrounding HSBC (LSE: HSBA). However, due to the size and complexity of the bank, it’s usually the subject of more rumours than most, and now is no exception. 

Slashing costs

The most recent rumour about HSBC is the speculation that, at its investor presentation next week, HSBC will unveil plans to cut up to 20,000 jobs. 

This rumour stems from a news article published by Sky News, which cited unidentified sources. Sky’s coverage also speculated that the bank was planning to sell operations in Brazil and Turkey, along with its investment bank. 

And this rumour could have some truth behind it. HSBC has been struggling with high costs for some time despite four years of drastic cuts. Additional cuts, along with a retreat from some markets, could be the only solution to rising costs.

Leaving the UK

Another whisper is that rising costs and falling profits at HSBC’s UK arm will prompt the bank to  move its headquarters out of the UK. Further, it is rumoured that HSBC is looking to spin-off its UK retail banking operations.

Even though this is just a rumour at present, it would make sense for HSBC to spin-off its UK retail bank. 

Indeed, ring-fencing rules, which come into force during the next few years, will effectively force HSBC to start up a new independent bank for retail bank customers in the UK.

HSBC has no choice but to comply with these rules and it could be easier to just spin-off or sell the UK arm altogether. 

Splitting up

Along with a UK spin-off, there’s been plenty of speculation that HSBC could be considering a full break-up to unlock value and boost returns.

HSBC’s falling return on equity — a key measure of bank profitability — and rising costs indicate that the bank has become too big to manage. A break up would allow HSBC to concentrate on key growth markets, such as Hong Kong and even Europe, where margins are higher.

A slimmer HSBC would also help reduce the bank’s regulatory compliance bill.

A black hole

The last major rumour regarding HSBC is probably the most troubling. That said, this rumour is based on a significant amount of speculation, although there is some evidence to support the conclusion. 

Two analysts at Forensic Asia, a boutique Hong Kong research firm, have claimed that HSBC routinely overstates the value of its assets. As a result, there could be $64bn to $92bn of “questionable assets” on the bank’s balance sheet.

The analysts estimate that HSBC could need as much as $100bn in additional capital to fill this gap. 

Too complex

Unfortunately, there’s no way of verifying this rumour. Even the City’s top banking analysts are now finding it almost impossible to understand complex bank balance sheets. So there could be anything hiding in HSBC’s balance sheet figures.

It is becoming clear that HSBC’s size and complexity has started to hold the bank back. Margins are coming under pressure, and returns are falling as the bank struggles to deal with increasing regulatory scrutiny and higher capital requirements.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »