How will HSBC’s share price perform in Q1?

Traders will be paying close attention to HSBC’s [HSBA] share price in the first three months of this year after the bank faced unexpected headwinds over the festive period.

HSBC’s share price has started 2020 on a downward trajectory, having dropped 1.2% up to 10 January.

The Anglo-Asian bank opened the year down after revealing that an overhaul, which may see the bank cut as many as 10,000 jobs across international branches, will be announced in full during its annual results on 18 February.

HSBC’s share price was hit further when it closed a number of Hong Kong branches following attacks by protestors who accused the bank of working with Chinese authorities.

Along with the share price the bank itself was already experiencing a flat festive period, after it revealed that it had scrapped its Return on tangible equity target of more than 11% in 2020 during its Q3 results on 28 October; this was due to an overall deterioration in the company’s revenue outlook.

What can we learn from Q3 results?

HSBC’s third quarter results highlighted how important the bank’s Asian business is. When reporting a disappointing 18% drop in pre-tax profits, Asia stood out as a key growth market, having climbed by 4%.

The results, which missed expectations, led interim chief executive Noel Quinn to state that he will remodel the bank’s strategy to “move capital into higher growth and return opportunities”, meaning that its Asia focus should only increase in coming months. Its Hong Kong business already accounts for 32% of the bank’s total revenues.

While this strategy may have seemed sensible at the time – the bank’s international outlook has been key to keeping its head above water during Brexit stress – Quinn did not predict that it would become embroiled in the politics of the Hong Kong protest.

Recent events saw protesters turn on the bank after an account used to raise funds for demonstrators was closed. Multiple HSBC branches in Hong Kong were defaced as a result and 11 branches and various ATMs were closed as a result.

Such events have some worried that the bank’s performance will struggle amid these circumstances.

Will Asia turbulence affect performance?

Views are mixed on whether the incident will truly impact HSBC over the next few weeks.

Given the high importance of the region to the group, the deterioration of Hong Kong’s economy due to protests is likely to add further pressure on the bank’s profitability, The Policy Times states. The economic outlook for Asia has also worsened, as shown by a downgrade in the IMF’s growth forecasts in October, which will offer additional stress for the bank.

Despite this, analysts told the Financial Times that being targeted by protestors in Hong Kong presents a PR challenge, rather than one that could threaten profits. Louis Tse Ming-Kwong, managing director of VC Asset Management, told the publication that he thought any impact on results would be “minimal” and that the bank “will have enough strength to cover their business within greater China as well as regional markets”.

HSBC share price vitals, Yahoo Finance, 15 January 2020

How will the restructure impact share price?

When news broke on 2 January that HSBC is considering yet another round of deep job cuts, its share price fell by over 1.5% throughout the day. Sources revealed to iNews that a second mass wave of redundancies are planned for the middle of the year on top of the 10,000 job cuts proposed during Q3 results.

The bank is reportedly looking to exit retail banking entirely in mainland Europe, keeping only UK branches and a slimmed down branch in Malta. Many of the branches in the west coast of US will also face closure, according to the report.

If given approval by the bank’s board, HSBC may be looking to cut nearly 25,000 jobs as the company refocuses its business on Asia. Given the response to the news earlier this year, the bank may be looking at a further share price drop once it confirms plans during its annual report on 18 February.

Additionally, the bank warned during its Q3 results that it could incur significant restructuring charges in Q4 and subsequent periods, which is likely to add concern in February.

What analysts say

Moody’s slashed HSBC’s outlook rating in mid-December after assessing the UK banking sector and expressing concern about the bank.

“The negative outlook on HSBC Holdings’ ratings is driven by the execution risk attached to the planned repositioning of HSBC Bank and of the group’s US business, and our expectation of subdued profitability in 2020 and 2021,” said Alessandro Roccati, senior vice-president at Moody’s, in a statement.

“The negative outlook on HSBC Holdings’ ratings is driven by the execution risk attached to the planned repositioning of HSBC Bank and of the group’s US business, and our expectation of subdued profitability in 2020 and 2021” - senior vice-president at Moody’s, Alessandro Roccati

According to 24 analysts polled on MarketScreener the consensus rating for HSBC is currently a hold. Four consider the stock a buy, two an outperform, eight a hold, four an underperform and six a sell.