HSBC Eyes Long-awaited Turnaround

September 16, 2022

HSBC Holdings PLC, Europe’s largest bank, is counting on rising interest rates to help revive its share price after a sluggish decade and to fend off an attack from its biggest shareholder.

The British bank has for years asked investors for patience as it retrenches from some major markets and sharpened its focus on Asia. That strategy has kept the bank’s finances steady but it has also kept a lid on profits and depressed its stock. HSBC’s HSBC 1.12% increase in share price in Hong Kong remains roughly a third of its 2007 peak.

Now, HSBC says business is primed to take off, mainly because rising interest rates will boost its earnings.

Investors remain skeptical. “There’s a fundamental disconnect there,” between the optimism among HSBC executives and shareholders’ unease, said John Cronin, a banking analyst at Goodbody Stockbrokers. “I think the share price is telling you the market is very, very worried about recession risks.”

This year, central banks including the Federal Reserve, European Central Bank and Bank of England have been rapidly raising interest rates to tamp down inflation. That is generally bad for corporations and households. But it is good news for banks like HSBC, which can now make more money on loans they extend to consumers and businesses.