HSBC the Future

[Pendrainllwyn]

I have been thinking a lot about the future for HSBC since the announcement of John Flint's sudden departure and it would not surprise me if we are in for a decent period of good results

Maybe Dod will be right. HSBC needs to up its game. According to Morning Star (I haven't verified) HSBC has struggled in the last decade to earn a creditable ROE.
2009 - 5.26
2010 - 9.54
2011 - 10.96
2012 - 8.40
2013 - 9.08
2014 - 7.35
2015 - 7.14
2016 - 0.71
2017 - 5.30
2018 - 6.70
Average ROE over the last 10 years - 7.04%
Average ROE over the last 5 years - 5.44%

On 8/13/2009 the stock closed at 669p. 10 years later it's 611p. So a good dividend yield but no share price appreciation. If HSBC cannot consistently earn an ROE nearer 10% then I don't see the stock price doing too much.

Pendrainllwyn

[Alaric]

If HSBC cannot consistently earn an ROE nearer 10% then I don't see the stock price doing too much.

For a really simple minded view of banking, a bank makes profits from borrowing at a lower interest rate than it lends. When risk free interest rates are at very low levels, as in the last ten years, that restricts the margin of difference it can charge.

I wonder to what extent the market considers that even the static dividend isn't really being earned, so is being paid out from retained earnings and marking the share price down accordingly.

[Dod101]

Of course my comments are subject to however the escalating HK situation is resolved, because it has to be resolved one way or another or the crucial one country two systems arrangements will disappear.

Dod

[Pendrainllwyn]

For a really simple minded view of banking, a bank makes profits from borrowing at a lower interest rate than it lends. When risk free interest rates are at very low levels, as in the last ten years, that restricts the margin of difference it can charge.

Indeed. Agreed. But as you say that's a simple view. A quick computation suggests HSBC made 43% of their operating income in 2018 from sizeable Wealth Management, Global Banking & Markets and Private Banking businesses which make their money in other ways.

Pendrainllwyn

[pyad]

I hope you’re right Dod. As I mentioned elsewhere, I hold these alongside Lloyd’s. I’m happy to continue holding both, but as I can’t tell the future, here’s hoping that both will come good, particularly on the dividend front.

Ian.

One of the very few, maybe the sole, sensible comment on this thread. There's often a solid, down to earth approach from Ian that I find refreshing amongst all the sophists round here who think they know something.

Nobody knows the long term future of HSBA and those who think they know, know least of all. You'd have to be a couple of shares short of an HYP to base any decisions around articles in the Exchange & Mart or whatever. Many here seem mistakenly to view those pieces as having some sort of authority on the long term future of HSBA from a HYPer's viewpoint.

All that matters are the usual HYP criteria, which will vary slightly between investors but the basics should be similar. Don't try and guess the long term future or follow someone else's guess either. Otherwise known as Strategic Ignorance. I can say from following markets and sheer life over 140 years that things rarely work out as planned or expected.

[Dod101]

I hope you’re right Dod. As I mentioned elsewhere, I hold these alongside Lloyd’s. I’m happy to continue holding both, but as I can’t tell the future, here’s hoping that both will come good, particularly on the dividend front.

Ian.

One of the very few, maybe the sole, sensible comment on this thread. There's often a solid, down to earth approach from Ian that I find refreshing amongst all the sophists round here who think they know something.

Nobody knows the long term future of HSBA and those who think they know, know least of all. You'd have to be a couple of shares short of an HYP to base any decisions around articles in the Exchange & Mart or whatever. Many here seem mistakenly to view those pieces as having some sort of authority on the long term future of HSBA from a HYPer's viewpoint.

All that matters are the usual HYP criteria, which will vary slightly between investors but the basics should be similar. Don't try and guess the long term future or follow someone else's guess either. Otherwise known as Strategic Ignorance. I can say from following markets and sheer life over 140 years that things rarely work out as planned or expected.

Your views are well known and you have added nothing new. Since I started this thread I might as well respond. I have never claimed to know anything about the future for HSBC. I have no crystal ball any more than anyone else. However, I know HSBC fairly well as an operation and have attended an AGM to see the new Chairman in action, and that plus keeping up with the news on it allows me at least to form some views. They may or may not turn out to be accurate but that is not the point. I pay no attention to any comments by commentators whether in Exchange and Mart (although the IC is usually better for investment comments) or elsewhere.

Congrats on your 140 years. Yes you will have seen a lot in that time.

Dod

[moorfield]

Well HSBA is sub - £6 today. Not that we do price anchoring here of course …

[Dod101]

It has to be a buy at that price unless we think that HK is going to disappear in a puff of smoke from the PLA.

Dod

[monabri]

Noting that HSBA is ex-dividend today - the "drop" is ~ the dividend.

(HSBA ex-dividend along with LGEN,PHNX,AV,SLA and others).

[jackdaww]

Noting that HSBA is ex-dividend today - the "drop" is ~ the dividend.

(HSBA ex-dividend along with LGEN,PHNX,AV,SLA and others).

========================

so the dividend income comes at the cost of the equivalent drop in SP.

[Alaric]

so the dividend income comes at the cost of the equivalent drop in SP.

That's how it works across the board. It's usually more noticeable on fixed interest securities as with equities a price change for other reasons can obscure the effect of the dividend.

[monabri]

Noting that HSBA is ex-dividend today - the "drop" is ~ the dividend.

(HSBA ex-dividend along with LGEN,PHNX,AV,SLA and others).

========================

so the dividend income comes at the cost of the equivalent drop in SP.

Yes, that's normal.... a little bit of the company value in the form of a dividend is paid to the investor ( well, should be paid on the pay day!).

[OLTB]

Bloody hell - I go on holiday for a week and all hell breaks loose... I have some accumulated dividends so I’ll be topping up HSBC on Monday. Not drawing dividends as income yet (15 or so more years of working for the man) so this extra £70 ish will be a nice meal out for me and Mrs OLTB.

Cheers, OLTB.

[Steveam]

I wonder whether the "China" relationship is weighing on the price? This from Bloomberg: "HSBC, the largest bank in Hong Kong, has been excluded from an influential panel of lenders by China, Bloomberg reports.

A group of 18 banks, including two overseas firms, will help set commercial lending rates in the country and HSBC, despite its size and prominence, has not made the cut.

It could be a sign the bank's relations with China may not be as rosy as they could be, says Bloomberg's report.

HSBC helped US prosecutors build a case against Weng Wanzhou, the chief financial officer of Huawei, the Financial Times reported. That may not have helped, said Bloomberg."

[Dod101]

I suspect that has a lot to do with the weak share price but HSBC is caught between the proverbial rock and a hard place at the moment. It needs to keep so many parties reasonably happy and of course the situation in HK cannot be helping because the Chinese think I am sure that the UK is behind some of the troubles there or at least is interfering in their internal affairs.

Note that they got the scalp of the Chief Executive of Cathay Pacific last week because of Cathay's perceived support for the demonstrations.

Dod