Over the past 12 months, the HSBC (LSE: HSBA) share price has fallen a staggering 16%, excluding dividends. That’s a massive decline for an FTSE 100 blue-chip stock.
However, following these declines, shares in the bank now appear cheap. As such, now could be the time to take advantage of the market’s volatility and snap up some shares in this FTSE 100 income champion.
Under pressure
There are a handful of reasons why the HSBC share price has underperformed during the past year. The biggest is a lack of leadership. The lender’s chairman sacked HSBC’s former CEO, John Flint, in August. Since then, it has been without a lead executive. In the interim, Noel Quinn has been running the shop.
For Europe’s largest lender and one of the world’s largest banks to be without a permanent CEO for seven months is shocking. The preferred candidate, Jean Pierre Mustier, the chief executive of UniCredit, ruled himself out of the running last week.
HSBC had said that it would be able to find a replacement for Flint in six months to a year. It has so far failed to meet this target, and I think that’s bad news for investors.
Without a permanent leader, the lender lacks long-term focus and strategic direction. In the meantime, Quinn has commissioned one of the “deepest restructurings” in the bank’s long history. He’s outlined plans for 35,000 job cuts over the next three years. Unfortunately, there’s no guarantee he’ll be around long enough to carry out the proposed plan.
On top of the management uncertainty, the City is also worried about the impact the protests in Hong Kong and coronavirus outbreak will have on the lender’s earnings.
Uncertainty prevails
This uncertainty has weighed on the bank’s share price for the past 12 months. However, it could be an excellent opportunity for long-term investors.
HSBC might be without a CEO for the time being, but it remains one of the world’s largest lenders. It’s also one of the world’s most connected banks, especially between the US, Europe and Asia. There are only a few other banks that can provide the same service.
That gives HSBC a vast competitive edge, and it’s unlikely to change anytime soon, considering its presence in Asia and long history of working with the region’s regulators.
Therefore, long-term investors would do best to look past HSBC’s shorter-term issues and concentrate on its potential further down the line. The stock is currently trading at a price-to-earnings (P/E) ratio of 10.1, which suggests it offers a margin of safety at current levels.
On top of this attractive multiple, the bank also offers investors a 7.5% dividend yield. So investors will be paid to wait for HSBC to find its way again and return to growth.