Will HSBC Holdings plc Suffer The Same Fate As Standard Chartered PLC?

Standard Chartered PLC (LON:STAN)’s results indicate that HSBC Holdings plc (LON: HSBA) is at risk from a rising number of credit impairments within Asia.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

hsbcStandard Chartered’s (LSE: STAN) third-quarter results shocked the bank’s investors. Indeed, after their release, Standard’s shares slumped around 10%, which is a huge move for a FTSE 100 giant like Standard.

These declines were powered by a stark warning from the bank; the quality of loans within Asia is deteriorating rapidly.

As a result, Standard has been forced to book impairments charges, totalling hundreds of millions of dollars, as it writes off non-performing loans. Not only is this a problem for Standard but it also likely to impact HSBC (LSE: HSBA), as the bank does most of its business within Asia.

Telling results

Standard’s third quarter results revealed a surge in the number of bad loans on its balance sheet, which crimped profits. The bank’s management revealed that impairments during the third quarter hit $539m, up from $250m as reported during the same period last year.

But now the bank is facing more commodity related expenses. Indeed, the majority of the $539m impairment charge was related to businesses with exposure to the commodity market. These problems were not just limited to China, Indian businesses also suffered. 

Unfortunately, these problems are not just limited to Standard. Banks throughout Asia are reporting a higher volume of loan impairments as highly leveraged companies struggle to repay debts. These impairments are particularly prevalent within the housing, steel, iron ore and coal sectors. Standard has already taken a $175m charge this year to cover the bank’s exposure to suspected commodities fraud in China.

Regional issue

It’s unlikely that HSBC will escape from this wave of defaults unscathed. The bank is one of Asia’s largest lenders and any major financial crisis caused by a high number of loan defaults, will have a knock-on effect across the region. 

Analysts are also becoming increasingly worried about the carry trade. A practice where wealthy individuals borrow money from banks within Hong Kong, to invest in China for a higher rate of interest. It is estimated that this market is worth up to $200bn.

And it’s this kind of financial intergeneration across Asia that is putting HSBC at risk. HSBC generates around 64% of its reported profit before tax within Asia. So, if a credit crunch were to spread across the region, half of HSBC’s pre-tax profit could disappear almost overnight. 

The bottom line

Standard’s revelation that loan impairments within Asia are surging, is worrying for all regional banks. Like Standard, HSBC is highly exposed to the region and is more than likely to suffer from any regional slowdown or credit crunch.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »