HSBC stock (
) is back in the news as allegations of money laundering and lax
security controls are levied against the bank. On Monday a 335 page
report was issued by the US Senate's permanent Subcommittee on
Investigations revealing numerous charges.
[caption id="attachment_56913" align="alignright" width="300"
caption="HSBC in Dubai"]
The Senate investigation uncovered evidence the bank had
processed transactions for clients operating in places such as Iran
and Syria. It is accused of concealing more than $16 billion in
questionable transactions with Iran in violation of US transparency
The report also detailed that between 2007 and 2008 HSBC's
Mexican operations transferred $7 billion into its U.S. operations.
Not a big deal necessarily, but the bank was warned by both U.S.
and Mexican authorities that only illegal narcotics proceeds could
have been credited for such a large amount of money.
The report also showed HSBC did business in Saudi Arabia with Al
Rajhi Bank, a bank allegedly involved in financing terrorism. The
senate report -- the result of a near decade-long
investigation, stated the bank had a "pervasively polluted"
HSBC told the panel Tuesday it had overhauled its policies and
processes and was addressing the problems head on.
Oddly, David Bagley, the top compliance executive at HSBC
since 2002, resigned during the hearing. It was curiously
timed, but seemed an effort to demonstrate the company's commitment
to resolving shortfalls in monitoring and stopping suspicious
Some analysts expect HSBC to be fined as much as $1 billion for
its infractions, and doubt its continued ability to function at its
current level, or retain its business relationships. So we have to
ask -- is HSBC stock a good investment?
The bank has extensive global reach, with operations in more
than eighty countries including numerous emerging and frontier
markets. This makes it quite appealing. Although its primary
operation is in the United Kingdom, its Asian operations are
critically important (HSBC originally stood for Hong Kong Shanghai
Bank). For emerging market investors HSBC stock must be on
everyone's watch list.
But a look at analyst ratings of HSBC stock does not currently
endorse its ownership. According to Starmine ranking data (Starmine
is a Reuters company that aggregates analyst coverage reports and
ratings), a preponderance of analysts have a neutral to
underperform rating. As far as analysts ratings go you can take
them with a grain of salt, but I like to see what the opinions
are on the aggregate.
I remember in the good 'ole days when "Neutral" meant "Sell"
since very few analysts would issue sell ratings for fear of losing
investment banking business. In HSBC's case the ratings have a
little more credence because they were bad before the Senate report
and hearing were made public.
The chart is not endorsing the company either.
The trend for HSBC stock is down and in stark contrast with the
S&P 500, which looks like it has more upside to it. Ultimately
HSBC stock is appealing. It has a global business, footprints
in 80+ countries and should greatly benefit from increased
globalization and the development of emerging and frontier
markets. But given the current allegations I'd have to leave
it on my watch list; there's just too many questions right now.