Are HSBC shares about to retest three-year low?

Easily the worst performing UK-listed bank in 2019 so far, our head of markets analyses latest results.

Not only are HSBC (LSE:HSBA)'s third-quarter numbers disappointing and light of expectations, but it seems that things will get worse before they get better.

The fourth-quarter outlook from HSBC predicts a torrid time, and this follows any number of underperforming units of the banking behemoth failing to deliver in this period. Operating profit was down 19%, net profit 24% and the Return on Tangible Equity figure slumped to 6.4% from a previous 10%. As such, the bank has implicitly abandoned its 11% target for RoTE in 2020. 

In its own words, areas of continental Europe, the UK and the US provided unacceptable performances and it is clear that these divisions need a radical overhaul.

This in turn means that restructuring charges in the final part of the year are likely to hurt, and will be in addition to the current fears of a global economic slowdown following on from the US/China trade spat, political turmoil in Hong Kong and general European economic malaise.

Source: TradingView Past performance is not a guide to future performance

Somewhat surprisingly, the performance in the Asia region from which HSBC derives the vast majority of its profits held up well, including a resilient performance (for the moment) from Hong Kong. 

Overall, pre-tax profit increased by 4%, even though there was an additional charge to potential credit losses arising from the Hong Kong conflict.

Overall, the capital cushion remained stable, there was evidence of growth in loans and advances, and the Global Private Banking division added $19 billion of net new money. Elsewhere, the dividend was maintained which, given the current yield of 5.1% and the magnitude of expenditure to come, is a prudent decision. 

• Bank sector Q3 results: Prospects for Lloyds Bank and Co
• HSBC worries mount after CEO exit
• The Week Ahead: Lloyds Bank results preview

However, there are more questions than answers emanating from this update. The continuing historic lows in the interest rate environment globally show no signs of abating, putting pressure on margins and the lack of clarity around a permanent CEO is another hurdle to jump. 

Meanwhile, HSBC is on a punchy valuation, which will become increasingly difficult to defend given the clear squeeze on the company's key metrics at present. The shares have had a lacklustre time which is beginning to look justified. A 7% decline over the last six months has limited the stock to a gain of just 1% over the last year, which compares to a 4.2% jump for the wider FTSE 100. 

The current performance and the immediate outlook both suggest better value elsewhere, with the market consensus of the shares as a ‘sell’ being the unfortunate result.