Why I Hate HSBC Holdings plc

There is something to love and hate in most stocks, and HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) is no exception. Here are five reasons why today, I hate it.

It has been a poor investment

Yes, HSBC survived the financial crisis in relatively good shape, but that hasn’t made it a particularly rewarding investment. It is up just 15% in the last five years, against 60% for the FTSE 100 as a whole. Over three years, it has returned just 2%. In the last six months, it is down 8%. Yes, HSBC does offer income, with its 4.05% yield the envy of many banks, but if you had re-invested that income for growth, you wouldn’t have got much in return.

It is supposed to be the good bank

For a good bank, HSBC keeps bad company. It is one of six global banks set to be fined by European Union anti-trust regulators, for allegedly rigging benchmark eurozone interest rates. The Financial Conduct Authority is also investigating its forex business. This follows hard on the heels of the Libor rigging scandal. And of course that $1.9 billion money-laundering fine, imposed back in March. Investors don’t know the outcome of these latest cases, or how much HSBC might be fined if found guilty. Or what it will be accused of next.

HSBC is a play on China

But who wants to play China these days? Its overly-centralised, lopsidedly export-led, misleadingly perma-boom economy still roars along but only on a tidal wave of badly abused credit and wasteful over-investment. If the crooked edifice comes crashing down, key HSBC bases in Hong Kong and Asia-Pacific will feel the impact. Chief executive Stuart Gulliver expects a soft landing in China. Not everyone agrees.

The regulators keep pushing banks harder

HSBC now has a healthy capital underpinning, with a Basel 3 core tier-1 capital ratio of 13.3%. But regulators keep pushing for ever-higher capital requirements, which is a particular concern for HSBC, says broker Nomura, “given its global footprint and the disadvantage it would pose to competitiveness in jurisdiction with lower capital ratios”.

It’s looking expensive

Yes, last week’s 30% rise in underlying Q3 profits to £5.1 billion was impressive. But there is a price to pay for this success, with HSBC now trading at 15 times earnings, compared to just eight times earnings for Barclays plc, and 10.5 times for Standard Chartered plc. So HSBC has pulled off the trick of being a poor share price performer, while being priced like a successful one. It’s a thin line between love and hate, but sometimes HSBC crosses it.

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> Harvey does not own shares in HSBC.