HSBC (LSE:HSBA) shares are down 6% over the past month after the bank said profits had tumbled nearly 30% in the first quarter. While the stock is up 10% over the past year, there have been plenty of factors weighing on its share price. Amid this volatility, it has been reported that executives from Ping An — HSBC’s largest shareholder — are set to meet to propose a break-up of the bank’s Asian operations. So, is now a good time to buy HSBC stock?
What’s weighing on its share price?
HSBC is still trading at a substantial discount versus pre-pandemic levels. The British bank’s share price has been impacted by a number of external factors, including inflationary pressure and the fallout from the Evergrande situation in China. On December 31, HSBC had $21.3bn of exposure to the Chinese property market. Despite central government stimuli helping the property market, ongoing lockdowns will be a worry. Chinese economic growth is projected to be 3.9% this year — that’s its lowest since 1990.
The London-listed bank also announced a 30% fall in profits for the first quarter, disappointing shareholders. It said profits fell to $4.2bn from $5.8bn a year ago. One reason for this was the $642m put aside to cover potential defaults on loans in the first three months of the year amid soaring inflation and a cost of living crisis. The figure also included $250m in provisions for potential losses linked to its direct exposure to Russia.
Reported break-up proposal
Amid all these factors weighing on the share price, as mentioned, Chinese insurer Ping An is reportedly set to propose a break-up of the bank. Ping An, which owns an 8.23% stake, allegedly wants to see it spin off its Asian assets. The bank hasn’t commented on the proposal but defended its structure, saying in a statement that it believed it had the right strategy and was focused on delivery. What would the proposal mean for the share price? At this moment, it’s not totally clear as very few details are known about Ping An’s proposal. But I doubt shareholders would lose out should it ever go ahead.
Prospects
Last year, HSBC recorded pre-tax profits of $18.9bn, trumping its performances in 2019 and 2017. Its price-to-earnings (P/E) ratio currently stands at 9.9. For me, that looks pretty attractive. I also like its balance of its traditional UK operations and increasing exposure to high-growth markets in Asia. In 2021, HSBC announced that it would be speeding up its ‘pivot to Asia’ plan.
However, a slowdown in growth in China is likely to be matched by some economic pain in the UK. The Bank of England has warned of recession risks amid soaring inflation and a cost of living crisis. The economy is set to grow by around 4% in 2022 but will slow considerably in 2023. This could hurt the bank’s core UK operations.
Should I buy?
I already hold HSBC shares and I think the firm is well positioned for long-term growth. The current dividend yield of 3.8% isn’t great when I consider where inflation is, but it certainly helps my portfolio. I see HSBC as a good addition to my portfolio and I’m looking to buy more shares.
