The shares of HSBCÂ (LSE: HSBA)Â (NYSE: HSBC.US) are not a bargain at this price, but they will likely prove defensive to the end of the year. The same canât be said about Standard Chartered (LSE: STAN)Â (NASDAQOTH: SCBFF.US) stock — which, however, could benefit for a change of leadership.
HSBC: A More Defensive Play Than Others
While many observers argue that HSBC shares are an opportunity too good to pass up based on their depressed trading multiples, I think the bank’s main attraction resides in the quality of its assets, which essentially appeal to buyers. Additional divestment of non-core operations is likely and will make HSBC a stronger bank, in my view.
A âprogressive dividend policyâ is another appealing element, although I donât think HSBCâs payout ratio will rise significantly in the next 18 months. Meanwhile, emerging market risk remains a problem, and in more volatile market conditions, HSBC may struggle to deliver value to shareholders.
âNorwayâs $880bn sovereign wealth fund, the worldâs largest, is slowing its expansion into emerging markets as it scales back a two-year mission to tap into the fastest growing markets,â Bloomberg reported on Thursday. This is not good news for HSBC and the likes.Â
Finally, dilution risk is less of an issue than at any other bank in the UK, but the possibility that HSBC may be forced to go for a rights issue also weighs on the bankâs valuation.
Since I wrote on 13 June that HSBC shares were worth a look, the bankâs equity valuation has risen by 4.2%, outperforming the FTSE 100 index by four percentage points. By comparison, Barclays stock is down 7.5%, while Standard Chartered stock is down 7.1%. The best performer over the period is Royal Bank Of Scotland, whose stock is up 5.8%, while Lloyds stock is up 2.7%.
Whatâs Wrong With Standard Chartered?
The shares of Standard Chartered are cheap for good reasons. Its capital ratios pose more questions than answers in this environment. Growth prospects have become less appealing in Asia, where Standard Chartered generates most of its business, and the bankâs reputation is in tatters.
The latest $300m fine from the New Yorkâs Department of Financial Services did little to help confidence in the management team, although Standard Chartered stock has not been materially affected.
âIt reinforces the disturbing impression that Standard Charteredâs top leaders are not on top of things,â the New York Times wrote this week. On Thursday, news emerged that the bank may face legal action by clients in the United Arab Emirates, too.
With regard to its US operations, and associated risks, on 1 July I noted that the bank had âproblems in other parts of its business,â rather than in the US, where exposure isnât significant. Well, I was wrong, and the broader implications of recent events must not be underestimated. Standard Chartered is faced with several headwinds, but just as the investor community ask for drastic changes, the announcement of a new boss may provide a fillip to the stock.