UK banking shares continue to tumble as markets react to the collapse of Silicon Valley Bank (SVB). HSBC Holdings’ (LSE:HSBA) share price fell to two-month lows earlier today. And this means the FTSE 100 bank offers even more blistering value for bargain hunters.
It now trades on a forward price-to-earnings (P/E) ratio of 6.5 times. Investors can also grab hold of a juicy 8.8% corresponding dividend yield at current prices.
In fact, could HSBC shares be the best value stock on the FTSE index right now?
The fallout
The failure of SVB has reminded investors of the chaos that prompted the 2007/08 financial crisis. So it’s perhaps no surprise that global stock markets (and not just the banking sector) have slumped.
It’s early days, of course. But the chance of a full-blown banking sector meltdown is seen by economists as remote. What seems more likely, however, is that central banks may reduce the scale of further interest rates increases so as to calm financial markets.
Analysts at ING, for instance, now say that “markets now see only 50% chance of 25 basis point hike” from the Federal Reserve in March. The US benchmark rate is also now expecting 67 basis points worth of cuts by the end of 2023.
Looser monetary policy would likely be mirrored by other central banks including the Bank of England. This would be bad for HSBC as it would reduce the difference between the interest they charge borrowers and what they offer to savers.
Making moves
It’s also worth mentioning that HSBC’s share price has fallen after its decision to acquire SVB’s UK operations for £1.
Susannah Streeter, analyst at Hargreaves Lansdown, notes that “shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds”.
Such concerns are understandable. Yet HSBC believes that the acquisition — which boosts its tangible equity by around £1.4bn — will have significant benefits.
Chief executive Noel Quinn said the move makes “excellent strategic sense,” adding that the takeover “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally“.
Time to buy?
I’ve long been a fan of HSBC shares. But admittedly investing in banking stocks requires more thought than it did just a week ago. So do I still believe bank is a buy?
The answer is an absolute yes. And especially following recent share price falls that, in my opinion, make it one of the FTSE 100’s most attractive value stocks.
Okay, HSBC’s share price may fall further in the coming days. Yet as a long-term investor this doesn’t discourage me from investing.
The world’s biggest banks look in great health, and the rapid response from regulators following SVB’s collapse shows how quick authorities will act to avoid industry contagion.
Meanwhile, I remain extra confident that Asia-focussed banks like HSBC will generate market-beating profits in the coming decades. Soaring personal wealth levels in this developing region is powering financial services demand. And low product penetration provides plenty of scope for growth.
If I have cash to spare I’ll be looking to buy HSBC shares for my own portfolio.
