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HSBC update Sept. 4th, 2021  

ISIN: GB0005405286 


HSBC is one of the biggest banks in the world with a market capitalization of about 120 bn$. It makes business in 5 continents. It is present in retail banking, commercial banking and global banking with about the same share of each division in EBT. 

HSBC seemed to have managed the corona panic without big damages thanks to its profitable Asian business. It further seems that HSBC managed to bring the European business back to profitability. It is to hope that this development will stabilize. 

The bank sits in the conflict between USA and China between the chairs. China put it - for some time - on a "unreliable entity list"and the USA and UK did as well critizise it. As its most profitable business is situated in HK & China it seems to make sense to take the chinese side. In the long run HSBC might become in the cold war US vs. China part of the chinese influence zone and a bridge head to the US influence zone. 

This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of HSBC shares. 

Opportunities & Risks

HSBC makes business in 5 continents. But most of its profits are generated in Asia a lot of it in Hongkong. It seems that HSBC reacted by allocating more efforts on Asia. Relocating key business heads from London to Hong Kong to better support clients and the business. In Q1/21 it seems likely that HSBC is able to fix the European business. But anyway it is going to become an Asian bank with some branches in Europe. 

The big risk is that during the last years plenty of imbalances built up in the world. Debt is very high in most of the established 1st world nations and increasing even faster. If this imbalances would offset it would hit nearly all investments including HSBC.  

Observations

Retail banking is the bank’s largest and most profitable business, the high profitability is due to the strong position in Hong Kong and less in the UK. HSBC’s long presence and reputation in Hong Kong gives the bank pricing power in this market.

Commercial banking esp. trade finance is HSBC’s original business, its second largest in terms of revenue but it is the biggest contributor of net income; it is highly profitable. HSBC offers several services for companies to make business abroad such as trade and receivables finance, credit and lending, cash management. The bank’s extensive network in many countries means that its business model is difficult to copy, resulting in an excellent position for its clients.

I had an HSBC account in the Middle East. I had the impression that the employees worked according to plenty of strict, static rules and regulations and had very small room for own decisions and initiatives. I appreciated it as it is in some countries a big fear is that the account fades away over night. In Europe with its qualified well paid employees such a bureaucracy is an efficient hurdle vs. success. 

It seems that HSBC wastes some of its energy with European left ideology as a gender  campaign and a task force on climate-related financial disclosures. It is to hope that it will stop when the company becomes more Chinese/Asian. 

Some Numbers

 

At April 30, 2021, the number of issued ordinary shares of US$0.50 is 20,750,200,008. It includes 325,273,407 shares in treasury. Therefore, the total number of voting rights in HSBC Holdings plc is 20,424,926,601.

HSBC does not intend paying quarterly dividends during 2021, but perhaps an interim dividend when it announces its first half results. From 2022 onwards, the bank intends to aim for a payout ratio of between 40% and 55% of reported earnings 


Share price Feb. 23rd, 2021: 5.92$




The most remarkable development in Q1/21 is that the European business found its way back to profitability. It is to hope that this development will go on.  

HSBC had already seen better times. A main reason for the low performance as of 2010 is the exposure in Europe and the low interest margin due to the negative interest rates implemented by the ECB.


 

Some News

2021, Aug. 20 In June, Beijing had passed new laws for the mainland that makes it illegal to comply with the sanctions placed on China's people and planned to implement the new laws in Hong Kong and Macau. HSBC might sit between the chairs of the USA and China. (21)

2021 May 27 HSBC backs out of U.S. retail banking (20) 

2021 Feb 26  HSBC issued 20,694,049,366 ordinary shares of US$0.50. This figure includes 325,273,407 ordinary shares of US$0.50 which are held in Treasury. Voting rights on treasury shares are not exercisable. Therefore, the total number of voting rights in HSBC Holdings plc is 20,368,775,959.(19)

2020 Feb. 18 Due to substantial challenges in its key markets, HSBC is cutting 35,000 jobs from 235.000 and $100B in assets over the next three years, and will incur $7.2B of costs because of the restructuring. HSBC will also suspend buybacks for two years (but maintain its dividend) and close around a third of its 224 underperforming U.S. branches.

2019 Sept. 11 HSBC weighs selling its French money loosing retail bank business.  (7),(8)

2020 jan 11, HSBC is going HSBC Holdings Plc has kicked off the sale of its French retail operations, (11). This is more or less a surrender as HSBC does not see the option to make this business sufficiently profitable again. 

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References: 

(21) 2021, August 20 https://seekingalpha.com/news/3732721-hong-kong-gets-reprieve-on-law-banning-anti-china-sanctions?mail_subject=hsbc-hong-kong-gets-reprieve-on-law-banning-anti-china-sanctions&utm_campaign=rta-stock-news&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha

(20) 2021, May 27 https://seekingalpha.com/news/3700623-hsbc-backs-out-of-us-retail-banking?mail_subject=hsbc-hsbc-backs-out-of-u-s-retail-banking&utm_campaign=rta-stock-news&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha

(19) 2021, Feb 26 https://www.investegate.co.uk/hsbc-holdings-plc--hsba-/rns/total-voting-rights/202102261630035672Q/

(18) 2021, Feb 24 https://www.theguardian.com/business/nils-pratley-on-finance/2021/feb/23/a-demerger-is-hsbcs-only-way-to-solve-its-hong-kong-problem

(17) 2021, Feb 10 https://www.thestandard.com.hk/section-news/section/2/227425/HSBC-eyes-paying-dividend-for-2020

(16) 2021, Jan. 4 http://iis.aastocks.com/20210104/9566027-0.PDF

(15) 2020, Sept. 28 https://seekingalpha.com/news/3617509-ping-insurance-modestly-adds-to-hsbc-stake-shares-up-7?utm_medium=email&utm_source=seeking_alpha&mail_subject=hsbc-ping-an-insurance-modestly-adds-to-hsbc-stake-shares-up-7&utm_campaign=rta-stock-news&utm_content=link-1

(14) 2020, Sept. 21st https://fortune.com/2020/09/21/hsbc-stock-shares-today-fincen-china/

(13) 2020, Aug. 3rd https://www.irishtimes.com/business/financial-services/hsbc-warns-loan-losses-could-hit-13bn-as-profit-plunges-65-1.4320524

(12) 2020, Feb 18 https://seekingalpha.com/news/3542526-major-overhaul-hsbc-results-in-35k-layoffs?utm_medium=email&utm_source=seeking_alpha&mail_subject=hsbc-major-overhaul-at-hsbc-results-in-35k-layoffs&utm_campaign=rta-stock-news&utm_content=link-1

(11) 2020, jan 11 https://www.bnnbloomberg.ca/hsbc-kicks-off-sale-process-for-french-retail-business-1.1372207

(10) 2020, jan 06 https://www.bnnbloomberg.ca/hsbc-walks-tricky-political-tightrope-between-hong-kong-and-beijing-1.1369442

(9) 2019, oct 28 https://seekingalpha.com/news/3510027-hsbc-abandons-rote-target-11-percent-shares-slump-3_8-percent

(8) 2019, oct. 16 https://www.reuters.com/article/us-hsbc-france-m-a-banks/hsbc-taps-lazard-to-sell-french-retail-business-source-idUSKBN1WU20U

(7) 2019 Sept. 11 https://seekingalpha.com/news/3498625-hsbc-weighs-sale-french-retail-bank-wsj?dr=1#email_link

(6) 2019 Aug 19 https://strategicmacro.blogspot.com/2019/08/hsbcs-exposure-to-hong-kong-real-estate_6.html?spref=tw

(5) 2019/Aug. 19 https://www.bloombergquint.com/global-economics/hsbc-gets-cold-shoulder-in-china

(4) 2019/June o3 http://www3.hkexnews.hk/listedco/listconews/sehk/2019/0603/ltn20190603091.pdf

(3) 2019/May 29 https://invezz.com/news/by_region/uk/hsbc-share-price-group-plans-to-boost-asia-retail-wealth-staff/

(2) 2019/May/3rd https://seekingalpha.com/article/4259506-hsbc-holdings-plc-2019-q1-results-earnings-call-slides

(1) 2019/jan/09 https://www.theguardian.com/business/2019/jan/08/uks-most-unequal-bank-hsbcs-gender-pay-gap-grows-to-61

2018/oct/29 https://www.blick.ch/news/wirtschaft/banken-asien-geschaeft-treibt-hsbc-weiter-an-gewinn-steigt-id9039267.html

https://seekingalpha.com/article/4202154-hsbcs-high-dividend-yield-opportunity

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