HSBC to decline further on energy loan portfolio losses

On Friday, the shares of HSBC holdings plc (HSBC) closed at $31.20, which is near the 52-week low of $30.13. Most analysts believe that the stock has little chance of recovery in the coming weeks because of a variety of reasons mentioned below.

Firstly, the performance of the bank during the fourth-quarter was extremely poor. The bank reported a net loss of $1.325 billion, compared to a net profit of $511 million in the fourth-quarter of fiscal 2014. Secondly, the annual report reveals that HSBC is currently being investigated by the US Securities and Exchange Commission (SEC) for employing people referred or related to the Chinese government officials.

Thirdly, the agency appointed by the US government, to assess the money laundering and compliance program of HSBC, has expressed serious concerns about the banks’ progress in tracking money laundering relative crimes. It can be remembered that in 2012, the bank was fined $1.9 billion for failing to adhere to the anti-money laundering norms. Additionally, based on the five years deferred prosecution agreement, the bank was expected to improve the compliance measures.

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Earlier yesterday, the Italian police announced that it is currently investigating a financial broker currently working for HSBC in Switzerland for possible money laundering crime.

The Italian broker is alleged to have collected funds from several high net worth clients and deposited in anonymous accounts in the HSBC, before transferring it to offshore companies in Panama and Luxembourg.

In the meantime, the bank has also decided not to shift its headquarters from London. The bank paid about £30 million to advisors for the assistance offered. However, some analysts believe that the decision is not a good one considering the fact that the bank will face much stricter regulation, apart from the additional banking related charges in the UK.

The energy loan portfolio continues to haunt the performance of the bank. Three years back, a consortium of banks, led by HSBC, gave a loan of $500 million to an Irish company named Petroceltic International PLC to develop its oil and gas property in Algeria. The company is now in deep trouble due to low oil prices and dispute with a major shareholder (former Deutsche bank AG trader). Thus, considering the situation, HSBC sold the loan at 30% of the face value. The losses incurred from the sale are also expected to reflect in the quarterly earnings. Thus, fundamentally, the bank is going to
have a tough time in fiscal 2016.

Technically, as the chart indicates, the momentum is below 100 and pointed downwards. Thus, further decline in the share price of HSBC can be expected. The stock also faces stiff resistance at 33 levels.

A binary options trader should purchase a one touch put option contract with expiry in the final week of April. A target price near $30 would ideally suit the trade.

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