HSBC global headquarters may be in London’s Canary Wharf, but it is Asia that is HSBC’s biggest market by some margin, with the region accounting for 78% of pre-tax profits in 2022. Such an outsized contribution has led to increased shareholder pressure to spin off the bank’s Asian operations, while London loses ground to rivals.
London now ties with New York for the accolade of the world’s top financial centre, according to a new report from the City of London Corporation. Companies—including UK firms—looking to list are increasingly attracted to the US, in the hope of securing higher valuations and a less restrictive business culture.
The Square Mile still performed well in several categories, including innovation and regulation, while the UK’s financial and professional services sector generated a £64bn trade surplus in 2022. But there is still concern over the fact that fewer companies are choosing to list in London.
HSBC’s [HSBA.L] share price has fallen 9.4% over the past month, closing Thursday 6 April at 562.9p. Since the start of the year, HSBC shares are up 9.2%, and over the 12-month period are up 6.21%.
But does the bank’s location have a material effect on HSBC’s share price?
Is London losing its charm?
London’s loss of status—and HSBC’s underwhelming share price performance—over the past month may not be lost on shareholders in Hong Kong. At an informal shareholder meeting held in the City at the start of April, HSBC’s top brass fended off questions ranging from the purchase of Silicon Valley Bank’s UK operations, to the potential breaking off of the bank’s Asian business.
Calls to break up the bank have been building over the past year, with shareholders in Hong Kong irked by the scrapping of the dividend in 2020 and the perceived underperformance of other parts of the bank compared to its Asian operations. Chairman Mark Tucker told shareholders that it would not be in their interests to break the bank up, and that the current strategy was working, with dividends improving.
Nor is it all doom and gloom when it comes to London’s position in the world of financial services. Research from the City of London Corporation also showed that the UK had brought in a record amount of investment in financial services. In 2022 the UK attracted 263 financial and professional services projects worth at least £2bn, and a higher amount of investment than any other European country. London retained the top spot for the number of foreign direct investment projects over the past five years, attracting 779, well ahead of second-place Dubai, which had 586.
“It comes as no surprise that London continues to lead the world as the top destination for investment in financial and professional services. The UK is a magnet to financial institutions as well as global institutional investors,” said Chris Hayward, policy chairman at the City of London Corporation.
HSBC places restrictions on crypto purchases
One area that HSBC seems cautious on is cryptocurrency, despite UK prime minister Rishi Sunak last year saying it was his ambition for the country to become a “global hub for crypto asset technology”. Wide-ranging proposals announced this year have seen rules around cryptocurrency brought more in line with mainstream financial assets, such as stocks.
But big UK banks remain reluctant to get involved with crypto, with HSBC among those who have restricted transfers to crypto exchanges.
In February the bank placed restrictions on customers buying crypto assets using an HSBC credit card, citing the Financial Conduct Authority’s (FCA) concerns that cryptocurrencies are high risk. Lloyds [LLOY.L] and Nationwide [NBS.L] have imposed similar restrictions. The FCA said earlier this year that 85% of cryptocurrency firms applying for registration with the watchdog failed to meet minimum regulatory requirements.
Where next for HSBC’s share price?
A recent focus on selling off underperforming assets and ploughing cash into its core business, notably in Asia, which account for the lion’s share of profits, have paid off for the bank.
HSBC delivered an 18% rise in full-year underlying revenue for 2022, coming in at $55.3bn, while underlying pre-tax profit rose 17% to $24bn. The bank was hit by a $3.6bn impairment charge as it earmarked some cash for a potentially economically uncertain 2023. The bank paid out a total of $0.32 in dividends last year, and will consider a special dividend after the sale of its Canadian operations.
Recent shareholder grumbles about breaking up the bank could be just that, while one might imagine that London’s loss of position to New York is unlikely to trouble a bank with a focus on the Asian market. Restrictions on crypto purchases by retail customers are similarly unlikely to have much meaningful impact on the bottom line. Real near-term headwinds remain economic uncertainty and the prospect of higher loan defaults.
HSBC’s share price has a 12-month median target of 711.24p. Hitting this would see a 26.4% upside on Thursday’s close.
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