Trade idea of the day: HSBC to impress with its results tomorrow

What: Tomorrow HSBC are due to report. The bank is expected to reverse a decade long decline in revenue, more than double its pre-tax profits and extend its multibillion dollar share buyback scheme. These are the last set of results with Chief Executive Stuart Gulliver at the helm and he is expected to go out on a high. Mr Gulliver has overseen a phenomenal turnaround at the bank, which was on the back foot for most of the time that he was heading it up. This was mainly thanks to the $1.9 billion in fines and deferred prosecution, following revelations that the Mexican business had laundered $881 million for two Latin American drug cartels. Whilst HSBC emerged from the 2008 financial crisis relatively unscathed compared to other banks, Gulliver wasn’t able to capitalise on this position because he was too busy repairing the damage done from previous scandals. Mr Gulliver invested millions in systems to overhaul checks and control, whilst also dealing with a strong headwind from the low interest rate environment. HSBC is finally turning a corner and is set to return to growth after putting the scandals and headaches behind it; fines are (mostly) paid, restructuring almost complete and interest rates are set to move towards normalisation. This last point is particularly important for HSBC which has a large excess of deposits over loans, significantly greater than UK banks. This means that normalisation of interest rates would see the interest rate headwind will quickly turn into a tailwind. HSBC share prices has rallied 70% over the past two years, thanks to improving investor sentiment. However, the stock is still and an underperformer in the sector, although that should not be the case for too much longer. HSBC has been earmarked as now having the potential to be a top performer in the sector, and tomorrow’s results could be the first step on that path. How: Technically HSBC is trading firmly above its 20 day sma, 50 day sma and 100 day sma, confirming a strong bullish trend on the daily chart. Meanwhile technical indicators also point to a strong buy on the same chart. An encouraging release tomorrow could see HSBC bulls target 770p prior to 782p. Support can be seen in the region 747p.

What: 

Tomorrow HSBC are due to report. The bank is expected to reverse a decade long decline in revenue, more than double its pre-tax profits and extend its multibillion dollar share buyback scheme. These are the last set of results with Chief Executive Stuart Gulliver at the helm and he is expected to go out on a high. 

Mr Gulliver has overseen a phenomenal turnaround at the bank, which was on the back foot for most of the time that he was heading it up. This was mainly thanks to the $1.9 billion in fines and deferred prosecution, following revelations that the Mexican business had laundered $881 million for two Latin American drug cartels. 

Whilst HSBC emerged from the 2008 financial crisis relatively unscathed compared to other banks, Gulliver wasn’t able to capitalise on this position because he was too busy repairing the damage done from previous scandals. 

Mr Gulliver invested millions in systems to overhaul checks and control, whilst also dealing with a strong headwind from the low interest rate environment. HSBC is finally turning a corner and is set to return to growth after putting the scandals and headaches behind it; fines are (mostly) paid, restructuring almost complete and interest rates are set to move towards normalisation. 

This last point is particularly important for HSBC which has a large excess of deposits over loans, significantly greater than UK banks. This means that normalisation of interest rates would see the interest rate headwind will quickly turn into a tailwind. 

HSBC share prices has rallied 70% over the past two years, thanks to improving investor sentiment. However, the stock is still and an underperformer in the sector, although that should not be the case for too much longer. 

HSBC has been earmarked as now having the potential to be a top performer in the sector, and tomorrow’s results could be the first step on that path. 

How: 

Technically HSBC is trading firmly above its 20 day sma, 50 day sma and 100 day sma, confirming a strong bullish trend on the daily chart. Meanwhile technical indicators also point to a strong buy on the same chart. An encouraging release tomorrow could see HSBC bulls target 770p prior to 782p. Support can be seen in the region 747p.

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