The HSBC (LSE:HSBA) share price was in the bottom 10% of FTSE 100 performers for last year. In 2020, the share price fell by almost 37% and it opened 2021 around 380p. As the largest bank within the FTSE 100, HSBC shares are bought and sold not only due to specific events. Broader changes in interest rates, economic growth and other metrics impact the share price too. Although my share price forecast for 2021 is positive, I think a lot of the drivers from 2020 will carry over into this year.
What drove the HSBC share price in 2020?
In my opinion, a large driver was the cut in global interest rates in Q1 of last year onwards. The US cut rates down to 0%, and here in the UK, rates fell to 0.1%. This made it hard for HSBC to generate profits as a traditional bank would. The difference from the interest rate HSBC pays savers versus the rate it charges by lending money out is the net interest margin. As of September, it stood at 1.2%. This is still a high rate (as the impact is delayed somewhat), but it was steadily decreasing in 2020. Lower margins ultimately mean lower profit, and a lower share price for HSBC.
Another driver was the painful restructuring going on. Up to 35,000 jobs are in the process of being axed as the bank tries to cut costs. With this going on, costs and provisions also had to be set aside for bad debt due to the pandemic. These provisions, which stood at $7.7bn, obviously ate into the resources of HSBC. At a time when the bank was already trying to minimise risk, the pandemic didn’t help.
Looking ahead for 2021
My HSBC share price forecast for the end of this year is for circa 440p, an increase of 15% from current levels. I use this level as it’s where the stock traded for several months during early 2016 before moving higher. The jitters we saw in the stock market during the second half of 2015 and into 2016 do feel to be similar to what we experienced last year. This tied in with uncertainty over growth in China and concern over government debt levels in Europe.
Aside from looking at the past, the prospects for this year also makes me optimistic for the HSBC share price. Firstly, the UK managed to achieve a deal with the EU, preventing a no-deal Brexit. This in itself is a positive for financial services in 2021.
In a recent trading update, HSBC’s CEO said: “We are accelerating the transformation of the group, moving our focus from interest-rate sensitive business lines towards fee-generating businesses, and further reducing our operating costs.” This addresses a lot of the issues I mentioned that meant 2020 wasn’t good for the HSBC share price. The fact that management is aware of this, and is looking to change, leads me to a positive share price forecast for the bank this year.
jonathansmith1 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.