HSBC Holdings (LSE: HSBA) is the largest UK bank listed on the London market. However, this banking behemoth has very little exposure to the ailing British economy. As a result, the HSBC share price has held up much better in 2022 than other bank stocks. However, the FTSE 100 stock took a knock on Tuesday, following the release of the bank’s latest quarterly results.
The HSBC share price’s ups and downs
As I write (late on Tuesday afternoon), the HSBC share price stands at 443.2p, down 31.9p (-6.7%) since Monday’s close. To be honest, this share slide surprised me somewhat, because the mega-bank’s latest numbers looked pretty positive to me. For the record, here’s how HSBC shares have performed over six other periods:
| Five days | -5.5% |
| One month | -11.2% |
| Six months | -11.6% |
| 2022 YTD | -1.0% |
| One year | 0.1% |
| Five years | -40.7% |
Although HSBC shares have held up fairly well over the past year, they have lost over two-fifths of their value over the past five years. Ouch. (All these returns exclude cash dividends, which would increase these returns by a few percentage points each year.)
That said, the HSBC share price is in a bear market of its own, having fallen by more than a fifth (-21.9%) from its 52-week peak of 567.2p. It hit this high on 11 February, less than two weeks before Russia invaded Ukraine and sent global stock markets crashing.
Higher rates mean higher profits
In its latest financials, HSBC unveiled a quarterly profit before tax of $1.7bn, nearly $1bn below the prior-year quarter’s figure of $2.6bn. But after various adjustments, the bank reckons its underlying after-tax profit was a healthy $6.5bn, up $1bn year on year.
One thing that directly boosted the bank’s profitability was higher interest rates. These widen banks’ revenues, earnings, and net interest margins (NIMs). Higher rates are something bank shareholders (but not borrowers) should welcome. Indeed, HSBC’s adjusted quarterly global revenue leapt by 28% to $14.3bn, while its NIM rose from 1.19% to 1.57%.
I like the look of HSBC’s dividends
At the current share price of 443.2p, HSBC shares look undervalued to me. Despite its focus on the tiger economies of the Hong Kong and China, HSBC stock trades on a modest price-to-earnings ratio of 7.4. This translates into an earnings yield of 13.6%, while the bank’s dividend yield is a tidy 4.9% a year. Helpfully, this cash yield is covered 2.8 times by earnings, which suggests to me that it is solid and well-underpinned.
However, HSBC’s hefty exposure to China and its authoritarian government is a big political risk to me. Likewise, with the Chinese property market in crisis, HSBC could lose big-time if homeowners default on their mortgages. But I believe that the bank is big, broad, and strong enough to survive the China’s downturn.
I don’t own HSBC at present, but I’d happily buy the shares at current prices. However, as I already have hefty exposure to UK banks, I feel it would be unwise to add to this sector position. Hence, I won’t be buying this cheap stock for my portfolio just yet — although I might be tempted if HSBC’s price declines continue!
