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HSBC Holdings share price (LSE: HSBA) shares are in the news, and not just because of the bank's Q3 results posted on Tuesday (29 October).
A week before, the FTSE 100 The banking giant unveiled a new and streamlined business model.
Have you ever wondered if we should think of HSBC as a UK bank, and try to compare it to the likes of Lloyds Banking Group? Or is it an international bank, focusing on the Chinese sector? Or an investment bank, or something?
I've been investing in bank stocks for years, and I've never been sure how to answer all that.
Make it easy
From 1 January 2025, HSBC says “work in four businesses with clear lines of responsibility“.
Those are Hong Kong, UK, Corporate and Institutional Banking, and International Wealth and Premier Banking.
All business will still be there. But hopefully this will make it easier for private investors to keep up with the rest of the market.
If it helps me compare HSBC's International Wealth and Premier Banking with an investment manager IM&Gsay, that must be a good thing.
Q3 results
During Q3, CEO Georges Elhedery said the bank “Strong natural capital production enables us to announce an additional $4.8bn in distributions in relation to the third quarter, bringing the total number of distributions announced so far in 2024 to $18.4bn.“.
I like to see a company with a lot of free cash that can continue to return it to shareholders like that. It comes as HSBC recently completed its previous share buyback. And we're looking at a predictable dividend yield of 7% here.
And, HSBC continues “target average teenage return on tangible teenage equity ('RoTE') in 2024 and 2025“. And it aims to “manage our CET1 capital ratio within our medium-term target range of 14% to 14.5%, with a dividend payout ratio of 50% by 2024.“.
I like the sound of that.
Uncertainty
What I'm not so sure about now, is how the new structure of HSBC will develop in the coming years.
As well as making individual business areas transparent to investors, it should also make possible future moves for the bank easier. Could we see a UK bank withdrawal?
Can it forge a closer relationship with the Chinese economy, with Hong Kong operations more accessible as a new business unit? All of these are fears, especially as economic relations between the West and China become more complicated.
In short, I just don't know what HSBC will look like in 10 years. And I think I have the best idea when Lloyds and Barclays they may be.
Measurement
Perhaps this uncertainty is behind HSBC's low valuation.
With a forecast price-to-earnings (P/E) ratio of just 7.5 this year, falling to 7.1 by 2026, the stock looks cheap.
And the big difference is very tempting.
I rate HSBC as another long-term income investor that would do well to consider buying. But for now, I'm playing the waiting game.
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