The HSBC share price isn’t having a good day, but I don’t think shareholders should be alarmed
By midday today (9 October), the HSBC (LSE:HSBA) share price was approximately 5% lower after the FTSE 100âs second-largest company announced plans to buy out the minority shareholders in Hang Seng Bank. It already owns 63.5% of the financial institution, which is listed on the Hong Kong Stock Exchange.
Not cheap
HSBC is offering to pay 30% more than the pre-announcement share price. This means the dealâs likely to cost $13.6bn. To help pay for this, itâs going to suspend its share repurchases for the next three quarters.
The purchase price definitely appears expensive to me. Itâs equivalent to 1.8 times the book value of Hang Seng Bank. For comparison, HSBC currently has a price-to-book ratio of one.
And judging by todayâs market reaction, investors are concerned. Andrew Coombs, one of Citiâs analysts, wrote: âWhile [the] strategic rationale is compelling, and this seems a sensible overall use of capital, we expect investors will query why now and at this price.â
The fall in HSBCâs market cap is pretty much the same as the cost of the deal. Itâs as though investors have placed no value on the minority stake that itâs looking to buy. This seems a little silly to me.
However, seasoned investors know that short-term price movements should be ignored especially when â as is the case here — nothing has fundamentally changed with the underlying business.
A possible opportunity
But now could be a good time to take advantage and consider taking a stake in a quality company thatâs 5% cheaper than it was yesterday.
Prior to today, according to the London Stock Exchange, HSBC had the fourth-lowest price-to-earnings ratio of the FTSE 100âs five banks.
And the highest yield. Of course, there are no guarantees this will continue. But the bank has a stated ambition of returning 50% of earnings per share (EPS) to shareholders by way of dividends each year.
A closer look at financial strength of HSBC shows that the Hang Seng Bank deal is pretty inconsequential. At 30 June, the group had $1.7trn of customer deposits on its balance sheet and $982bn of loans. And during the first six months of 2025 (H1 25), it reported a profit after tax of $12.4bn.
Pros and cons
But there are a few things to keep an eye on. During H1 2025, its net interest margin was 1.57% compared to 1.62% for the same period in 2024. Diluted EPS was also lower.
Banks act as a barometer for the health of the wider economy. Any sign of a significant global slowdown and Iâm sure HSBCâs share price will suffer. But with operations in 57 markets it has a truly global reach, which should give it some protection from isolated country-specific problems.
According to McKinsey & Company, the worldâs banks generate a return on tangible equity (RoTE) of 11.7%. But HSBC does better than this. In 2024, its RoTE was 14.6% (16% excluding notable items). And itâs targeting a âmid-teensâ return in 2025-2027. This performance is underpinned by an ongoing efficiency drive thatâs expected to yield annualised cost savings of $1.5bn by 2026.
On this basis, I reckon investors could think about taking advantage of todayâs share price pullback and consider adding the stock to their long-term portfolios.
The post The HSBC share price isn’t having a good day, but I don’t think shareholders should be alarmed appeared first on The Motley Fool UK.
Should you invest £1,000 in HSBC Holdings right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if HSBC Holdings made the list?
More reading
- HSBC shares sink 6% on Hong Kong news! Is this a dip-buying opportunity?
- 3 UK shares to consider this month as major brokers raise their price targets
- The FTSE 100 index just made history!
- Why the HSBC share price spiked 10% last month
- How much do you need in an ISA or SIPP to target a £3,000 monthly second income?
HSBC Holdings is an advertising partner of Motley Fool Money. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
