5 Things To Know About HSBC Holdings PLC

HSBC Holdings Plc (SEHK:0005) is one of the largest banking institutions in the world. The megabank is facing higher regulation amid multiple fines from regulators in the past few years. These higher costs of doing business and the ultra-low interest rate environment in the US and Europe is dampening the profitability of the bank.

STOCK INFORMATION

1
TICKER SYMBOL: SEHK:0005
MARKET CAP: HK$ 1,250.0 Billion (Updated 12 March 2017)
MARKET PRICE / SHARE: HK$ 63.05 (Updated 12 March 2017)
SECTOR: Finance
INDUSTRY: Banking

THE BUSINESS

HSBC Holdings is one of the few banks that have presence globally. The bank counts the United Kingdom, Europe, Asia and the US as its core market. Due to its large presence, the bank has been facing many regulatory challenges over the past few years. From its involvement in the great financial crisis to anti-money laundering charges and even Euribor manipulation charges.
The business is struggling in many areas but some investors are seeing opportunities of a possible turnaround story happening before our eyes at the moment.

KEY STATISTICS (FY2016) 

Net Revenue: USD 59.8 Billion
Net Income: USD 2.4 Billion
Total Assets: USD 2.41 Trillion
Earnings per Share: USD 0.07
Dividend Yield: 6.5%
Net Income Margin: 4.0%
ROE: 0.7%

KEY OPPORTUNITIES

1. Global Presence
HSBC Holdings is still one of the few banks that have a global presence. It is also one of the few banks in the world that provides a full range of financial services for its clients, from retail to commercial banking, to wealth management and investment banking. This means that for multi-national companies, using the services of HSBC can help them streamline their financing operations. For one, it would be easier to coordinate with one bank rather than multiple local banks in each of their regional branches. This put HSBC Holdings at a good position to attract large multi-national clients.
2. Return of higher interest rate
The banking industry might benefit when the world returns to a higher interest rate environment. Banks typically still earn a spread, called the net interest margin, between their cost of funds and their interest charged to customers. Therefore, as interest rate increase, they might have the ability to widen that spread. That could potentially increase their revenue.

KEY RISKS

1.Too big to succeed
HSBC Holdings is such a large financial institution that it is deemed as one of the “too big to fail” banks. Given its large presence, it is also constantly in the view of regulators around the world. That means it might face stricter oversight and might be hindered from adapting its business in a fast-changing world.
2. Position of London after Brexit
HSBC Holdings has a very strong presence in the United Kingdom. Its headquarter is still located in London. However, after the referendum the United Kingdom leaving the European Union, the status of London as a banking hub is under threat.
Given that HSBC Holdings still operates a large part of its business out of London, how the company reacts to this change might be critical to its success in the future.

VALUATION

HSBC Holdings Plc is currently trading at 121 times its (depressed) earnings, and offers a 6.5% dividend yield.

LISTED PEERS

1. Citigroup Inc (NYSE:C)
2. Industrial and Commerical Bank of China (SEHK:1398)

INVESTOR RELATIONS

Investor Relation Material:
Annual Report
Financial Information
Hong Kong
Investor Relations team
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road, Central
Hong Kong
Telephone: +852 2822 4908
Fax: +852 2845 0113
E-mail: investorrelations@hsbc.com.hk

TOP SHAREHOLDERS DIRECT INTEREST (31 Dec 2016)

1. BlackRock Advisors LLC – 6.62%
2. Vanguard Group Inc – 2.05%
3. Government Pension Fund of Norway – 1.99 %

FINANCIALS

Morningstar – Income Statement
Morningstar – Balance Sheet
The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Value Invest Asia capacity and do not in any way represent those of our other related entities.

Stanley Lim, CFA

Stanley Lim has spent the last decade in the investment industry. Over the course of his career, he has kick-started a few businesses, worked in the family office industry and most recently in the investment advisory industry. He has been a writer and analyst for The Motley Fool Singapore from 2013 to 2017. He has written close to 2000 articles online, on investment education and market analysis. He is the co-writer for the upcoming investment book: “Value Investing In Asia”, scheduled to be published late 2017. Stanley is currently the chief editor of Value Invest Asia.