As I write this, the HSBC (LSE: HSBA) share price is up almost 9% on the day. This comes after hitting a 25-year low last week. I wondered at the time if I should buy the stock at such a low price. Now I am worried I may have missed the boat.
Money Laundering
The spark that caused such a drop in HSBC’s share price last week, was a report suggesting that money laundering was allowed to take place at the bank years ago. Personally, I think the nervousness in its shares may be somewhat overdone. But as always of course, it depends.
A scandal like this, aside from public concerns and bad press, can have two major detrimental impacts. Firstly, governments and legislators may put in place more stringent conditions that affect the bank. This can lead not only to more red tape, but perhaps even the hindrance of expansion plans and international restructuring.
HSBC is undergoing just such a plan at the moment. Shifting resources away from the US and Europe towards its more profitable Asian businesses.
Secondly, there can be direct costs associated with better compliance. New staff or consultants may need to be hired and new computer systems put in place. Perhaps there could even be a shift in current systems costing millions. This worries me a lot less for HSBC though.
The bank said it has been improving safeguards since 2012. This should mean little in the way of fundamental shifts in its systems. Similarly, though additional costs may run into the millions, this is a drop in the ocean for a bank the size of HSBC.
The PR doesn’t look good, and the HSBC share price certainly took a hit on the news. Realistically however, customers are not likely to flee the bank because it may have not been perfect in stopping money laundering, not least because the same report also mentions other major banks.
HSBC share price bounces back
With this in mind, is it too late to invest to get the best bargain? News today that major shareholder Ping An Asset Management has increased its stake in the bank has boosted the HSBC share price by about 8% in the London market. This effectively balances out the losses brought about by the money laundering report.
I am still not sure the short-term outlook is as bright as the long term, however. As I said, HSBC has major restructuring plans in place. I believe this will be very good for the HSBC share price in the long run. The bank is effectively going to concentrate its capital in Asian markets, where most of its profit is made.
This won’t be quick though, and may involve costs that have a real impact on its bottom line. The benefit of this is also very dependent on the political landscape in Asia, particularly in Hong Kong and China.
The demonstrations and anti-government protests that Hong Kong has been seeing may be the tip of the iceberg. A real shift in power and uncertainty in the region will be far from beneficial for the bank.
We may have missed the lowest dip in the HSBC share price, but I am still happy to keep my position as it is until I see the way the wind is blowing.
