The HSBC (LSE: HSBA) share price has gained 15% over the past 12 months, while the FTSE 100 is up just 6%. That’s pretty good, but over the longer term, the picture is not quite so rosy.
Over five years, HSBC shares are down around 25%, and have still not recovered to pre-pandemic levels.
But what do HSBC‘s first-quarter results, released Tuesday, say about the bank’s 2022 progress? Pre-tax profit is down 28% to $4.2bn (£3.3bn at current exchange rates), from $5.8bn in the first quarter of 2021.
The bank put the fall down to an impairment charge to cover expected credit losses in the quarter. That’s partly due to rising interest rates. But it’s also partly a result of what CEO Noel Quinn describes as the “devastating consequences” of the war in Ukraine.
This reverses a recent trend of banks recording impairment credits as the Covid impact turns out softer than feared. But with 2022’s developing economic and geopolitical crises, I have been expecting it.
HSBC share price response
The HSBC share price dipped 3.5% in morning trading Tuesday. Perhaps, surprisingly, the negativity has not spread to other UK-listed banks. Shares in Barclays edged up 1%, while the UK-focused Lloyds Banking Group enjoyed a 3% gain by midday.
On the liquidity front, HSBC’s CET1 ratio fell to 14.1% at 31 March, from 15.8% at 31 December. That still looks pretty strong to me. But the disposal of HSBC’s French retail business should set it back a bit in the second half of 2022.
And the bank did add that “volatility in equity from financial instruments held as economic hedges of net interest income may result in our CET1 position temporarily falling below our target range during 2022, making further buy-backs in 2022 unlikely at this stage.“
Time to buy?
So what are my thoughts, and am I likely to buy? Firstly, though the HSBC share price dipped on the day, I’m pleasantly surprised by the relatively small extent of the fall. That’s possibly because, though the outlook for the bank has declined, its profit figure did beat analysts’ expectations.
Maybe bank investors have become hardened by the multitude of external threats the sector has faced over the past decade and more? Or maybe it’s just that our banks wallow on such low valuations that there can’t really be much further downside?
HSBC valuation
Going on trailing earnings, the current HSBC share price gives us a P/E of about 10. Even if earnings should dip a little in 2022, I think we’d still be looking at an unstretching valuation.
And HSBC is on a relatively high valuation compared to the others. Lloyds, for example, offers a trailing P/E of 6.2. And Barclays is even lower at under five, following its 2022 share price slide.
On the dividend front, the current HSBC share price gives us a trailing yield of 4%. And this latest update will surely put pressure on the 2022 dividend.
Will I buy? Right now, I see other banks on more attractive valuations with better dividend prospects. So I won’t buy HSBC just now, not with the external challenges it faces. But it does remain on my candidate list.