HSBC (LSE: HSBA) has had a rotten run over the last 12 months. A year ago, HSBC’s share price was hovering around the 600p mark. Since then, it has fallen as low as 282p.
Recently, though, the share price has shown signs of a recovery. Since its low of 282p in late September, it has rebounded by about 15%. Is now the time to buy? Let’s take a look at some recent developments.
HSBC’s share price is rebounding
It posted its third-quarter results last week and the figures were pretty poor. A few of the risks I discussed in my last article on HSBC, such as bad debts related to Covid-19, low interest rates, and geopolitical risk across Asia, were to blame.
For the period, reported revenue was down 11% to $11.9bn. Profit before tax was down 36% to $3.1bn (but this did beat analysts’ forecasts of $2.1bn). Net interest margin – a key metric for banks – was 1.2%, down 36 basis points on the same period last year.
The near-term outlook was also quite dire. Expected credit losses and other credit impairment charges (ECL) are expected to be between $8bn and $13bn this year, assuming the Covid-19 situation doesn’t deteriorate further (it may). And low interest rates are expected to continue putting pressure on net interest income. Meanwhile, HSBC said that US-China relations and Brexit could have further adverse impacts on its income due to lower lending and transaction volumes.
A new business model
However, there were some positive takeaways from the Q3 results. One was that, as a result of low interest rates, the bank is adapting its business model. Going forward, it plans to move its focus from interest-rate-sensitive business lines towards fee-generating businesses.
CEO Noel Quinn said its basic bank accounts would remain free to operate. However, he added: “We will look in all our markets at the appropriate pricing strategy for fees and lending by customer segment to make sure we have a sustainable profitable business going forward.”
I see this as a smart move, given how low interest rates are currently. Low interest rates make life difficult for banks because much of the income they generate comes from the spread between the interest rates they charge to lend money and the rates they pay to borrow money. When interest rates are low, spreads are compressed.
HSBC also said it intends to increase its rate of investment in Asia in areas such as wealth, trade finance, and sustainable finance. This is also a smart move, in my view.
On the dividend front, HSBC said it will consider whether to pay a conservative dividend for 2020. Any such dividend, however, would be dependent on the economic outlook in early 2021, and be subject to regulatory consultation.
HSBC shares: is now the time to buy?
Given the hit that HSBC’s share price has taken this year (it’s down nearly 50%), I think there’s a chance the stock could continue rising. The stock is probably still oversold at current levels.
That said, I wouldn’t buy HSBC shares today. To my mind, the risks remain too high. Not only is there Covid-19 to consider, but there’s also the US-China trade war, political issues in Hong Kong, and Brexit.
My view is: why take a risk on these shares when there are so many other less-risky UK shares to buy?
