HSBC’s share price took a knock in April when the bank announced it put its share buyback scheme on hold due to a dip in its liquidity position. The CET 1 ratio dropped by 1.7% to 14.1%, which is still a respectable level, but the bank felt it should use the cash to beef up its balance sheet. A combination of rising inflation, the war in Ukraine, and supply chain issues impacted the bank’s decision to press pause on the stock buy back programme. It was a short-term loss and a medium-term gain as the share price recouped those losses by late June. In the three-month period, pre-tax profit fell by 27% to $4.17 billion, but it smashed the $3.72 billion forecast. There were various reasons behind the fall in earnings; Covid-19 restrictions in Hong Kong, expected credit losses, and the sharp fall in global stock markets. Provisions for bad debts are common for banks these days because of the fragile economic climate, but the focus will be on whether the provisions continue to rise or plateau.
Net interest margin ticked up for the first time since 2020, and the net interest income increased by $500 million to $7 billion. It appears the rates hikes from the Bank of England are helping the bank’s lending division. Looking ahead to the first half numbers, traders will have high hopes for the net interest margin given the upward move in gilt yields. Banks usually see improved lending margins when interest rates are rising. Andrew Bailey, the BoE chief, said that a 0.5% rate hike is a possibility at the next meeting, and such a move should help lending profitability.
In early May, HSBC launched a $1 billion share buyback scheme. The news projected an image of optimism as the bank clearly feels it has bolstered its liquidity position sufficiently to justify such a generous return to its investors. The London-listed bank wants to keep shareholders sweet as the insurance company Ping An has called for its break-up.
HSBC’s share price has been trending higher since March, but the upward move is not exactly aggressive as the stock has not retested the peak of late June, which by the way, was a three-month high. While the stock holds above the 500p mark, the broad bullish trend should continue, a rally from here could see it target 555p, and if that level is cleared, it could bring 600p into play. On the other hand, a drop below 500p might put 472p on the radar.
HSBC will post its first half numbers on Monday 1 August.