The Motley Fool

Is the HSBC share price low enough to buy?

I have long been a fan of HSBC Holdings (LSE: HSBA) as an investment. Unfortunately this is now one stock that coronavirus has me more uncertain about than any other. Unlike some other industries that I feel are oversold because of fear, banking has a big issue that could cause it trouble. Bankruptcies.

There is almost no doubt that despite the government’s best efforts, many small businesses will go under. The lockdown is keeping people away from pubs and shops alike. Many firms simply will not survive. Almost all of these companies will have loans with banks – loans that they will not be able to repay.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Provisions

It is this figure that hurt HSBC’s quarterly results reported on Tuesday. The bank said it increased loan provisions to $3bn, in an effort to prepare for a run of bankruptcies caused by the lockdown. CFO Ewen Stevenson also warned of “deep, severe recession events” – not exactly confidence-inspiring.

As always, it is the unknown that is of more worry than the facts. We simply do not know how many businesses will be going bankrupt. Nor do we know what the economic environment will look like when lockdown ends. If we did, we could make choices.

Unfortunately, as HSBC investors, some of the prospects that make the stock interesting are no longer there. Once one of the best dividend yields on the FTSE 100, the bank has now suspended its payout. This is for the first time in 75 years, and came on the back of UK government pressure due to the coronavirus. Investors in Hong Kong are now threatening legal action.

HSBC restructuring

The other key problem for HSBC is that its planned restructuring is now on hold. This was set to be a combination of job cuts and re-allocation of capital. Personally I am of the opinion that both of these things would be of great benefit to investors.

HSBC has long had an overinflated headcount across its business. In addition, re-allocating assets and people away from less profitable areas and into better ones seemed likely to set HSBC on a good path for the future.

Specifically, the bank was going to concentrate its efforts in Asia, where it is most profitable. An optimistic view may say that at least the plans are only on hold. In a first-in, first-out way, Asia seems likely to recover from the coronavirus before much of the rest of the world. This may mean HSBC will get even more benefit from reinstating its plans.

However, it seems unlikely that either US or European lawmakers will be happy with the bank cutting jobs just as we head out of lockdown.

To sum up my feelings around HSBC, I am certainly holding on to the stock I have, but I am not buying more. I can see potential for the current price to be a bargain, but for now things are just far too uncertain.

I will. however, be watching this space!

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Karl has shares in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.