The HSBC share price fell more than 8% during last Tuesday’s trading session, following its Q3 results, after the revelation that CFO Ewen Stevenson was to leave the business. HSBC stock was also put under pressure after the Asia-focused bank upped its provision for non-performing loans, in the face of the ongoing global economic uncertainty.
The HSBC [HSBA.L] share price fell more than 8% on 25 October following its third-quarter results announcement, which included an unexpected revelation that chief finance officer, Ewen Stevenson, was to leave the business. HSBC's stock was also put under pressure after the Asia-focused bank upped its provision for non-performing loans, in the face of the ongoing global economic uncertainty.
The precarious macroeconomic backdrop, with soaring inflation rates feeding a cost of living crisis, allied to the political upheaval in the UK, has led to a wider trend of loan-loss provisions across HSBC’s peers both domestically and further afield. After its Q3 numbers and the wider economic fragility, what’s the outlook for HSBC’s stock?
What’s happening with the HSBC share price?
After shedding 8.19% intraday in London trading on Tuesday, HSBC ultimately closed the week 7.46% lower at 442.20p. HSBC stock is now 7.89% above its 52-week low of 409.85p, set on 30 November last year, and has dropped 22.04% from the 52-week high of 11 February, when the shares reached 567.20p.
CFO departure disappoints analysts
HSBC announced that Ewen Stevenson will step down as CFO at the end of the year, before leaving the bank in April 2023. He’ll be replaced by co-CEO of global banking and markets, Georges Elhedery, in January 2023. CEO Noel Quinn said Stevenson’s “embedding [of] disciplined cost management” was “a key part” of HSBC’s growth over the past four years. It appears Elhedery is being groomed for the top job, after Quinn told the Financial Times that his “ambition is to provide the board with … options for potential succession”.
Analysts, however, were distinctly unimpressed. UBS analyst Jason Napier said the market will be “disappointed”, while Investec’s Ian Gordon said: “I’m surprised and disappointed that Ewen is leaving. He has brought much-needed credibility to HSBC’s cost discipline and financial targets after a decade of persistent disappointment.” Gordon added that it’s “a peculiar decision at this juncture, and regrettable for the business.”
HSBC reports mixed earnings as it ups loan-loss provisions
A 28% rise in adjusted revenue to $14.3bn helped HSBC unveil adjusted pre-tax profit of $6.5bn in Q3, comfortably ahead of analysts’ expectations at $6bn, and up $1bn year-on-year. However, profit-after-tax came in at $2.56bn, less than half that in Q2, and well down on last year’s $4.2bn. Part of the reason behind the fall was an increase in provisions for non-performing loans of $1.1bn – doubling the amount set aside year-to-date to $2.2bn – reflecting “increased economic uncertainty [both in Asia and the UK], inflation and rising interest rates”.
HSBC upgraded guidance for net interest income by $1bn to $32bn for this year, but cut net interest income guidance by $1bn for 2023 from “at least $37bn”, partly due to sterling’s weakness versus the US dollar. RBC Capital Markets analyst Benjamin Toms maintained a ‘buy’ rating on the stock, saying that “HSBC provides a combination of both growth and capital returns”.
Wider banking sector faces up to economic uncertainty
While HSBC’s share price remains under pressure following its more cautious outlook, and the unexpected announcement of Stevenson’s planned departure, Europe’s banks are also caught in the economic crossfire. NatWest [NWG] was the last of the big four UK banks to report quarterly earnings last week, following Barclays [BARC] and Lloyds Banking [LLOY], as the quartet all reported bigger-than-expected provision for loan losses, ahead of a predicted downturn in the economy.
Lloyds appears to be “starting to batten down the hatches after what has been a turbulent quarter for the UK economy”, according to CMC Markets analyst, Michael Hewson. The bank set aside another £668m of impairments in its Q3 results, “in a sign that the recent squeeze on customer finances was increasing concern about possible loan losses”, said Hewson. Lloyds has set aside impairment provisions of over £1bn year-to-date.
Standard Chartered [STAN], like HSBC, also has a significant exposure to Asia, and has seen its share price slide sharply over the last couple of months, as worries over the economic outlook in its core Asia markets intensify. It’s a similar story across the pond, after US banks Citigroup [C] and JPMorgan Chase [JPM] recently reported higher revenues, but admitted facing up to a tough period ahead.
What’s the outlook for HSBC stock?
Among 18 analysts offering 12-month price targets on HSBC’s share price, the UK-based bank has a median target of 638.08p, according to the FT, with a high estimate of 793.07p, and a low estimate of 500.30p. The median estimate represents a potential upside of 44.30% versus Friday’s close at 442.20p.
As of 27 October, analysts polled by the FT had become slightly more bullish on HSBC, with four ‘buy’, and six ‘outperform’ recommendations. Overall, with 10 ‘hold’, alongside one ‘underperform’ recommendation, analysts maintained a consensus ‘hold’ on HSBC stock.
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