Warning: HSBC Holdings plc May Never Return To 600p

Photo: Barry Caruth. Cropped. Licence: https://creativecommons.org/licenses/by-sa/2.0/

HSBC's (LSE: HSBA) shareholders have had a rough ride over the past 12 months. Indeed, since mid-February 2015, HSBC's shares have lost a quarter of their value, excluding dividends, underperforming the FTSE 100 by more than 10%.



Multiple headwinds

HSBC is facing many different headwinds all of which will work together to pressure the bank's costs, and slow sales growth during the next few years.



However, during the past few months interest rates have started to fall into negative territory for the first time ever -- a disastrous development for banks. With interest rates below zero, it'll cost banks more to hold cash on their balance sheets (a requirement of regulators) and banks will be forced to issue loans with low-interest rates to customers, squeezing income. What's more, negative interest rates will support zombie firms, and generally speaking, this isn't good for the economy and lending in general.

And the third major headwind that HSBC is facing is that of China. Specifically, China's slowing growth and mountain of debt: a toxic combination.

A fourth factor that could hold back HSBC's growth going forward is the increasing competition in the banking sector and the pressure on margins that this is having.

Difficult to work around

A bank of HSBC's size will struggle to work its way around the increasingly hostile operating environment with which financial institutions around the world are now faced.

With this being the case it's likely that HSBC's sales income will only deteriorate going forward, and as result, investors are unlikely to want to pay a premium for the shares. City analysts are already forecasting a 4% fall in earnings per share this year.


The bottom line





