<News Alert> HSBC (5 HK) weak GBP impact largely in price while short-term volatility may maintain
What’s new
- GBP/USD falls to historical low after the tax cut plan and has falls by 11% in 3Q and c.20% YTD to 1.0889.
- Share price of HSBC/Standard Chartered falls 10% or more this week.
Our view:
- In FY21, HSBC generated c.25% of its PBT from UK. It had c.25% of loan and 27% of deposit balance in GBP by the end of FY21.
- At 31 Dec 2021, HSBC had net investment hedges of USD 25.9bn, of which USD 15.7bn is related to GBP. HSBC had c.USD 32.2bn of structural foreign exchange exposure in GBP by the end of FY21.
- Shareholders equity would decrease by c.USD 3bn if euro and sterling FX rates weakened by 5% relative to the USD, as disclosed in their FY21 annual report, or c.1.7% of its equity book value.
- Impact on PnL: If GBP/USD falls by 5%, it will have c.USD 430m of impact on revenue and c.USD 260m of impact on costs if we use FY21 HSBC UK financial number as the estimation baseline. The total impact would be c.USD 240m on PBT, or 1.3% of total FY21 PBT.
- Impact on Capital position: if euro and sterling FX rates falls by 5%, RWA will go down by USD 12.9bn from 1H22’s level and CET 1 ratio will go down by 15bps from 1H22’s level of 13.6%.
- The share price is now trading at 0.5x FY23F P/B, or >1SD below its 5-yr average. We see the negatives from GBP depreciation is largely in price now while short-term volatility is likely to maintain with higher US recession risk. Still, we expect China/HK economic recovery in FY23F and Asia contributed over 60% of PBT in FY21.
- We currently have BUY with TP of HKD 63.9
