HSBC: The heartbreak bank

March 09, 2020 12:43
HSBC fell below HK$49 a share in early morning trading on Monday, sending its market capitalization to the lowest since Brexit in June 2016. Photo: CNSA

The coronavirus outbreak has hit banking giant HSBC (00005.HK) particularly hard, with its share price dropping to a four-year low.

Hong Kong's largest bank and possibly the most profitable company registered in the city fell below HK$49 a share in early morning trading on Monday, shrinking its market capitalization to slightly above HK$1 trillion, the lowest since Brexit in June 2016.

Poor HSBC! It took the United Kingdom three years and three prime ministers to fix Brexit – but only weeks for the bank to return to square one.

The once-mighty bank, a symbol of the halcyon days of Hong Kong in the early '90s, has performed poorly over the past decade. The bank now only ranks fifth in market value, behind Alibaba Group Holding (09988.HK), Tencent Holdings (00700.HK), China Construction Bank (00939.HK, 601939.HK) and China Mobile (00941.HK).

Even before the Covid-19 outbreak, the bank has been reeling from the slowdown in China, its most profitable market. And with the epidemic, economic activities have ground to a near halt, further dimming the lender's outlook. 

Chinese authorities appear to be containing the spread of the virus, however, with no new cases of infections outside Hubei province over the past two days. Industries are also coming back to life, and probably will recover soon to make up for the lost time.

But for HSBC, the prospects remain bleak. The current low interest rate environment will make it even harder for the bank to replicate its high-growth performance in the past, particularly here in Hong Kong, which accounts for nearly 90 percent of its group profit.

Little wonder the bank has brought in an outsider, Mark Tucker, to become the group chairman. HSBC now plans to cut 35,000 jobs, or nearly 15 percent of its workforce, in the next three years as part of a restructuring plan that will see it refocusing on growth markets in Asia.

Assuming that it is facing a no growth – if not negative growth – situation, HSBC may see its share price decline even lower.

Interestingly, while its share price drifts lower, its dividend yield looks higher. The historic yield now tops 8.2 percent. But even if its dividend were halved, that would still be a respectable 4.1 percent.

A back-of-the-envelope calculation showed it had paid out HK$64 in dividends over the past 15 years, more than its current share price.

So for loyal HSBC shareholders, that means a slow but steady income, making HSBC look more like a utility rather than a bank.

Despite all its current troubles, HSBC enjoys being pretty much like a monopoly with a 40 percent share of the local market.

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EJ Insight writer