HSBC has been through many crises in its 155-year history but the threat it faces now appears to be among its most serious (Katherine Griffiths writes). Generations of leaders of the international bank have found ways to guide it through times of war, economic strife and political unrest. But the team in charge at present are struggling to follow in their footsteps.
It is not that they are doing an incompetent job but that the parties involved in the present conflict appear to want to force the bank to pick a side. Is HSBC a western-grounded financial institution whose values mirror those of the UK, where its shares are listed, and the US, a small market for the bank but the world’s largest economy? Or is it an institution whose biggest market and deepest roots are in Asia, with its fate firmly tied to China?
At the moment, it seems, HSBC cannot be both. Its shares fell more than 3 per cent yesterday after the bank acted in an unusual way on Saturday — publicly denying via Wechat that it had “framed” Huawei, the Chinese telecoms group, and played a role in the arrest of Meng Wanzhou, its chief financial officer, in December 2018 at Vancouver airport on a warrant from the US.
HSBC has also been put under pressure by Chinese politicians for its stance on the new security legislation in Hong Kong. The bank responded through another posting on Wechat last month by Peter Wong, its Asia-Pacific chief executive, signing a petition to back the legislation. At the same time, public figures in the UK and US have taken a swipe at the bank, including Mike Pompeo, the US secretary of state, who has accused HSBC of a “corporate kowtow”.
It is a long way from the pacifying words of Mark Tucker, the chairman, in February alongside the bank’s annual results. Speaking before China’s new rules to crack down on dissidents in Hong Kong but after the pro-democracy protests of last year, Mr Tucker said: “We deplore all violence and support a peaceful resolution under the framework of ‘one country, two systems’.”
Mr Tucker and Noel Quinn, the chief executive, will face difficult questions when they present half-year results next week: should they shrink the bank’s US business in an attempt to please the authorities in China? How important will Hong Kong be in the future and what opportunities will come HSBC’s way in China? Just as pressing are investors’ questions about the hard numbers: when will the bank boost its returns and deliver on promised cost cuts?
HSBC’s challenge is that its stated strategy of focusing on Asian growth is hard at a time of political unrest, a health crisis that originated in China and the prospect of an extended period of ultra-low interest rates making the bank’s surplus of Hong Kong deposits a particular drag.
Yet while the outlook is grim, things may not be so bad later on. US politicians’ bashing of HSBC is likely to subside after the presidential election in November. The Huawei noise may diminish when Ms Meng’s extradition tussle is resolved, although that may take months.
There may even be brighter times ahead in Hong Kong. Individuals are risking their lives and liberty to fight for freedom, but some believe the conflict will be resolved and that more integration of Hong Kong into China could put it at the heart of rapid economic growth.
That would be good news for HSBC, which is by far the largest bank in Hong Kong, where it generates 35 per cent of its group revenues and 55 per cent of profits. HSBC’s diverse global network is one of the most valuable in the banking world in the longer term. But investors may want to avoid it until that is a little bit clearer.
ADVICE Avoid
WHY Too much uncertainty about US-China tensions and the impact on Hong Kong
Hurricane Energy
Investing in oil and gas is not for the faint-hearted (Greig Cameron writes). Geopolitical tensions can quickly send oil and share prices into reverse. There is also growing pressure to switch to renewables.
Recently you can add demand issues caused by Covid-19, such as airlines being grounded and other forms of transport operating at fractions of their capacity.
Backing oil companies on London’s junior Aim offers opportunities for those who like to indulge in a healthy chunk of risk in their portfolio. And Hurricane Energy has experienced peaks and troughs in the price of its shares during the past few years.
They were about 10p at the start of 2016 and reached a high of 64p in May 2017 before sinking to less than 29p in September that year. By September 2018 they were above 58p but have been on a steady decline since last November. The shares started this year at about 30p and have not been above 10p since May.
Hurricane looks for hydrocarbons in rock formations known as fractured basements, which lie below where North Sea oil has typically been extracted. It successfully found large accumulations in an area to the west of Shetland with independent reports suggesting its acreage may contain more than two billion untapped barrels.
Hurricane raised substantial sums including a $230 million convertible bond, which is due in 2022, to build an early production system (EPS) on the Lancaster site to prove the viability of fractured basements. In 2018, Spirit Energy joined as a drilling partner on the adjacent Warwick area.
First oil began flowing from the Lancaster EPS in May last year and more than 5.7 million barrels have been extracted. Yet doubts persist as the amount of water brought up at one of the two Lancaster wells has continued to rise. Hurricane this year withdrew its guidance of 17,000 barrels per day for 2020.
However, yesterday the shares rose by 7.7 per cent to just under 6p after an electric pump on the more troublesome well lifted production to 5,000 barrels per day in the past few weeks. The other well continues to produce about 12,000 barrels.
ADVICE Hold
WHY There is not much further for the shares to fall and some potential upside
