HSBA Hsbc Holdings Plc

By Frances Yoon 

HSBC Holdings PLC stock sank to a 25-year low as it came under pressure on three fronts, highlighting the difficulty of the bank's geopolitical balancing act.

Chinese state media over the weekend warned the British lender could face restrictions on its business in China, adding to a squeeze on the stock after reports said HSBC and other banks overlooked instances of money laundering and that its home U.K. market could go into a second lockdown to counter rising coronavirus cases.

HSBC for decades navigated political faultlines as a London-based bank making most of its profits in Asia and clearing dollars for companies across the world for global trade. It is caught in the middle now of rising tensions between the U.S. and China over trade and the status of Hong Kong. In the U.K., its large domestic bank is ratcheting up loan loss provisions to cover coronavirus-related defaults.

Investors are concerned HSBC could be put on an "unreliable entities" list in China that would threaten the bank's growth plans in retail banking and in the country's securities markets. Over the weekend, China's Ministry of Commerce said such entities could face limits on investment and staff in China. It hasn't designated any businesses in this way yet, but China's state-owned Global Times tabloid said many media reports had named HSBC as a candidate.

HSBC has been present in China since its 1865 founding in Hong Kong and Shanghai, and runs the country's largest foreign-owned branch network. It angered Chinese authorities when it shared information about Chinese telecommunications equipment company Huawei Technologies Co. with U.S. prosecutors in 2016. HSBC said it responded to formal demands and didn't seek to harm the company, whose finance chief faces charges in the U.S. for allegedly misleading HSBC and other banks about ties between Huawei and an affiliated company doing business in Iran.

In the U.K., government scientific advisers said coronavirus cases could rise steeply if action isn't taken, and indicated the public should prepare for six months of restrictions.

Meanwhile, on Sunday, BuzzFeed News, the International Consortium of Investigative Journalists, and partner media organizations published reports Sunday citing documents leaked to BuzzFeed that included more than 2,100 reports filed by financial institutions with the U.S. Treasury Department's Financial Crimes Enforcement Network suggesting that HSBC and other banks may have facilitated crime due to lax controls.

HSBC said "all of the information provided by the ICIJ is historical" and predated the Justice Department's conclusion in 2017 that it had met commitments under a five-year deferred prosecution pact. The bank said it spent years overhauling its financial crime controls, and "is a much safer institution than it was in 2012."

The reports, and wider jitters in global stock markets Monday, pushed the stock down 5% and also weighed on HSBC's bonds. Jérôme Legras, head of research at Axiom Alternative Investments, said a move in the lender's riskiest bonds, which can convert to equity in distress, was significant and reflected investors' concerns. The bank has one of the strongest capital ratios in Europe, a measure of its financial strength, at 15% at June 30.

Tom Kinmonth, a fixed income strategist at Dutch bank ABN AMRO Bank NV, said bonds of U.K. banks Barclays, Standard Chartered and HSBC were all facing some pressure Monday following the news reports, which were based on a trove of documents called suspicious activity reports.

Tom Kinmonth, a fixed-income strategist at Dutch bank ABN AMRO Bank NV, said bonds of U.K. banks Barclays PLC, Standard Chartered PLC and HSBC were all facing some pressure Monday after reports they may have facilitated crime in news articles based on a trove of suspicious activity reports.

Stocks of other banks cited in the news articles on suspicious transactions, such as Barclays, Deutsche Bank AG and JPMorgan Chase & Co., also fell.

Shares of HSBC and many other banks have tumbled this year, as the coronavirus pandemic has wreaked economic damage and forced central banks to slash interest rates, which damages banks' profits.

Mr. Kinmonth noted that the market capitalizations of the banks in the Stoxx Europe 600 Banks index are at their lowest since the depth of the financial crisis in 2009, meaning they are trading at a fraction of their net worth.

The depressed share prices make it harder to tap investors for more capital, and some lenders are beginning to consider mergers as a way to cut out costs and give a better return to shareholders.

Last month, HSBC said net profit plummeted 96% to $192 million in the second quarter as the impact of the pandemic complicated its efforts to refocus on Asia while dealing with rising U.S.-China political tensions.

In March, the Bank of England directed HSBC and other banks to cancel 2019 dividends to shore up their capital buffers. The move angered some smaller investors in Hong Kong who held the stock largely for regular dividend income.

Patricia Kowsmann and Yifan Wang contributed to this article.

Write to Frances Yoon at frances.yoon@wsj.com

(END) Dow Jones Newswires

September 21, 2020 14:08 ET (18:08 GMT)

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