HSBC Oct 29, 2018

 

HSBC is one of the biggest banks in the world with a market capitalization of about 170 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 is a solid bank with a >5% dividend yield. I assume they will grow the business and offer attractive opportunities to those that want to invest in a blue-chip company which offers a great proxy to the economic growth in the main markets of the bank. 51c dividend 5% dividend. HSBC is listed on the LSE and hence there is no withholding tax applied. The dividend is paid completly in your pocket. The estimated profit/share of 75c (2018) and a share price of 8 $ (oct.29,18) povides a PE of 11 that is not expensive. 

Opportunities & Risks

It seems that HSBC is making its turnaround after many disappointing stagnating years. It looks like HSBC is getting back on track. 

Due to its strong retail banking HSBC has a surplus in deposits. An increase in interest rates and the interest spread short term - long term can increase the profitability significantly. Since Q3/18 deposit margins are going to increase. 

HSBC makes business in 5 continents. But 83% of its profits are generated in Asia a lot of that share in Hongkong. A new qualified management team that makes the business in Europe and North America profitable could improve the profitability significantly. On the other hand an economic downturn in greater China could vaporize HSBC profits. 

There are plenty of imbalances in the world. Debt is very high in most of the established 1st world nations. There is an imbalance in the EU between North and South. There is an ideological conflict and crack line between Germany with its green left ideology and Eastern Europe that has a more conservative ideology. A sudden financial crisis in Europe could vaporize HSBC profits. 

Observations

The regulatory (compliance) programs costs > 3 bn$/yr. . I assume that there are additional indirect efforts/costs for this regulatory bullshit not mentioned in this numbers. All in all regulatory is a main profit hurdle in todays banking world.

Provisions relating to legal proceedings and regulatory matters are at 2 bn$ (June 30,18)

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. 

 

 

Some Numbers

Number of shares: 19,877mio. (30 September 2018)

Q3/2018: Reported PBT of $5.9bn, Reported PBT (9month18) $16.6bn, Revenues (9month18) 41,085 , Strong capital base with a common equity tier 1 ratio of 14.3%, Tangible net asset value per ordinary share (TNAV) $7.01.  Earnings per share $0.56 (9month18).

This is not a recommendation or proposal to do anything. It is my private personal opinion. I`m not independing as I own a position of HSBC shares. 

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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