When I last covered HSBC (LSE: HSBA) shares at the start of the month, I said the best move for investors was to leave the stock alone. I noted the company faces plenty of challenges at present and said there were much better stocks to buy.
In hindsight, that now looks like a good call. Since my article, HSBC’s share price has fallen from 317p to 287p – a decline of about 10% in less than a month. Here, I’ll explain why HSBC’s shares have fallen recently. I’ll also provide my view on the FTSE 100 bank stock now.
Why has HSBC’s share price fallen?
The main reason HSBC’s share price has fallen recently is that reports have emerged the bank allowed criminals to transfer millions of dollars around the world in 2013 and 2014.
A leak of secret documents – reportedly made up of over 2,100 suspicious activity reports (SARs), filed by financial institutions with the US Treasury’s Financial Crimes Enforcement Network (FinCEN) – show that HSBC moved vast sums of criminal money for a Ponzi scheme, even after it had learned of the scam.
A number of other major banks, including JP Morgan, Deutsche Bank, Standard Chartered, and Bank of New York Mellon, also appear in the leaked documents which are being called the ‘FinCEN files.’
It’s worth pointing out HSBC, in a statement to Reuters this week, said this information is “historical.” It also told Reuters that, as of 2012, it embarked on a “multi-year journey to overhaul its ability to combat financial crime.”
However, it’s fair to say these allegations don’t look good for HSBC. As my colleague Stuart Blair pointed out on Monday, accusations such as these carry “significant reputational risk.” The fallout could have a negative impact on revenues and earnings going forward.
My view on the stock now
In my opinion, these money laundering allegations just add more risk to the investment case for HSBC. When I covered HSBC shares earlier in the month, I discussed five key issues that concern me in relation to the bank. These were:
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The geopolitical risk related to the US-China face-off
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The negative impact on profits from Covid-19-related bad debts
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Low interest rates and their potential impact on profitability
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Competition from innovative financial technology (FinTech) firms and digital banks, such as Monzo
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The suspended dividend and the reviewing of the dividend policy
All of these issues still concern me. The FinCEN money laundering news and potential reputational damage is just another issue to add to the list.
All things considered, my view on HSBC shares remains the same. I think this is a stock that’s best left alone right now. HSBC’s share price could rebound at some stage. After all, it’s currently at levels last seen in the Global Financial Crisis.
In my opinion, there are much better stocks to buy at present.
