Stock of the day 20/02/2015 – HSBC Holdings PLC

After a disappointing 2014 on the markets, things just got a lot worse for the world’s second largest bank, an unwelcome distraction ahead of HSBC’s full year 2014 earnings release on Monday.

2013 saw HSCB lose nearly a pound in value, and 2014 wasn’t much better as it spent most of the 12 months stagnating at best. It started the year at £6.58, and reached what was to be its high in mid-January at £6.80. A few weeks later it spiked to an intra-day high of £6.87, but this price couldn’t be sustained as declines set in. This fall culminated with its 2014 low of £5.55 at the start of July. Things looked brighter for HSBC after this point, but the recovery it saw over August and September slowly began to dissipate as autumn turned to winter, and by start of 2015 HSBC was trading at £6.13. Its situation has only got worse since then, and after a string of recent scandals it is now trading at £6.01.



The cause of its recent woes was the leak that the Swiss arm of HSBC has helped certain wealthy clients in tax evasion and asset obfuscation. This was just the tip of the dodgy iceberg, as the bank was accused of providing accounts to criminals and corrupt businessmen alike between the years of 2005 and 2007, leading to HSBC offices over the globe being raided following claims of ‘aggravated money laundering’. These tax issues have become a battleground for Labour and the Conservatives in the run up to the election, with both parties furiously trying to accuse each other of taking money from donors that used the bank for these exact evasive purposes.

However, HSBC’s stocks have dealt remarkably well with the issue. The share price loss has been around 6-7%, a relatively small amount considering the wide-coverage of the scandal. The bank even escaped unscathed when it was revealed it expected to pay out £2.2 billion in bonuses despite the recent scandal engulfment that has defined the bank in the past few weeks.

With all this news, it can be easy to forget that the bank is announcing an important set of figures on Monday. However, this earnings release doesn’t look like it will bring the joy HSBC sorely needs, with a forecast 7% drop in full-year pre-tax profits to $21 billion, alongside a 3% fall in net income fall to $15.1 billion. Operating costs are also to rise 4% to $40.3 billion; whilst the current $1 billion a year spend on improving internal controls could rise in the wake of the Swiss tax scandal. Given the deluge of information surrounding the bank, analyst ratings have been mixed, with 14 ‘holds’, 11 ‘buys’ and 5 ‘sells’ and an average target price of £6.81.