FTSE 100 bank HSBC (LSE:HSBA) is the latest in a stream of banking giants to report losses and growing credit impairment provisions. It posted a 65% fall in pre-tax profit for the first six months of 2020. Meanwhile, its credit impairment provisions rocketed 590% from $1bn to $6.9bn, in comparison to the equivalent period last year. It also reported a 9% fall in revenue down to $26.7bn, affected by interest rate reductions and deteriorating market values of assets in investment banking and insurance. The HSBC share price is tumbling on the news.
What’s affecting the HSBC share price?
As worries of a second wave of coronavirus intensify, and trade war concerns heighten, negative sentiment is weighing on the financial markets. This is not helping the share prices of banks like HSBC. The shares are down 45% year-to-date.
In its 2020 interim results Group CEO, Noel Quinn, stated: “Our first half performance was impacted by the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”
It’s not all grim news. In Asia, HSBC reported profit before tax of $7.4bn, despite a higher rate of expected credit losses, highlighting the importance to the group of doing business in the Asia region. However, with its large Asian market presence, HSBC is especially exposed to repercussions from the US-China trade war and Hong Kong disruptions.
Being heavily involved in the region, HSBC announced its backing of China’s new security laws for Hong Kong. The bank stated that the law could help maintain long-term stability in the area. However, these laws were opposed in the UK and caused a political outcry. I think the fact HSBC backed it may come back to bite it.
No more dividend
All banking institutions paused their dividends in response to an instruction from the Bank of England at the beginning of the pandemic outbreak. This has been a big blow to income investors, particularly those heavily invested in the banking sector. It was certainly a major factor in causing the HSBC share price to slide so far this year. The FTSE 100 bank has pledged to reinstate its dividend as soon as is reasonably possible, but with so much uncertainty ongoing, it could be a long time coming. Also, it may not be the lucrative dividend it once was as banks will have to be realistic about their losses and future growth prospects.
Yet while HSBC suffered some loss of earnings, it still made a pre-tax profit of $4.32bn for the first six months of the year. This is down from $12.41bn in the first half of 2019 and below analyst estimates. As I write, HSBC has a £69bn market cap (but this could drop if the share price declines further), price-to-earnings ratio around 14 and earnings per share are 23p.
Unfortunately, I think the enduring geopolitical uncertainty, particularly from the US-China trade war, will weigh heavily on the HSBC share price for some time to come. I’m not a fan of the banking sector and without a dividend to up the ante, I will continue to steer clear. I think there are better bargains available in the FTSE 100.
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Kirsteen has no position in any of the shares mentioned. 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.