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A couple of weeks ago, when we were on holiday with friends, it was hot, the food was fabulous and the wine was plentiful. However, for one of our group, the biggest excitement came with her new bank card. She had recently opened an account with Monzo and was delighted with all the services it offered abroad – she even told us how much money she was spending on trips to bars and markets.
My friend is not alone. Millions of people are signing up with so-called “challenger” banks, those online-only businesses that are tech-savvy and offer new accounts in minutes and plenty of easy-to-use tricks designed to keep customers interested.
New entrepreneurs are a welcome addition to an industry that has been stagnant for decades. But most of the newcomers make little or no money, partly because they continually invest in updated technology and also because most Britons still rely on traditional banks and building societies.
Complaining about these institutions may be a national pastime, but few of us are willing to move entirely to internet-only companies, and business customers are even more traditional, turning to traditional intermediaries for their many banking needs.
This innate conservatism is a constant challenge for newcomers, but it means that traditional lenders remain a dominant presence in the banking sector, with HSBC being the biggest of them all.
On the horizon: HSBC pays good dividends and remains dominant despite rivals like Monzo
Valued at £116bn, HSBC is Britain’s fourth-largest company, with 40 million customers in 60 countries.
The bank posted revenue of $66bn (£52bn) last year and profits doubled to $30.3bn as lending rose, expenses fell and higher interest rates bolstered profit margins.
In other words, the bank was able to make more money from the difference between what it charged customers to borrow money and what it offered them in savings accounts.
This source of income, which is a source of constant frustration for customers, is likely to shrink as interest rates fall. But HSBC is expected to continue growing steadily this year and beyond, earning profits of around $32 billion by 2026.
However, HSBC shares have been on a rollercoaster ride in recent years, hitting £7.50 in 2017, plummeting during the pandemic and not fully recovering since.
Today, they are £6.45 and should trend higher as the bank leans into faster-growing markets and strives to reward customers and shareholders.
As for investors, HSBC is one of the most generous dividend payers on the stock market. Outgoing chief executive Noel Quinn announced a special dividend of 21 cents (16.5p) earlier this year, after selling a Canadian subsidiary for almost £4bn. Even excluding this one-off payment, traders expect total payouts of 63 cents (49.6p) this year, rising to 67.8 cents (53.3p) in 2025 and almost 72 cents (57p) the following year.
This puts HSBC shares on a yield of over 7.5 per cent, especially attractive in the current climate as the bank itself offers a maximum savings rate of 4.6 per cent.
Quinn will step down next month and be replaced by Georges Elhedery, the group’s current chief financial officer. A lifelong HSBC employee, Quinn spent five years at the helm and is credited with simplifying the business and cutting costs.
Elhedery is expected to continue in that vein, using his financial skills to balance investment with a firm control of expenditure. The group has certainly benefited from Quinn’s stewardship, but there have been challenges.
HSBC makes most of its money in Asia, particularly China, where it has the largest network of any foreign bank. Premier Xi Jinping has struggled to regain the country’s economic momentum and the outlook remains uncertain.
HSBC also has to tread carefully in China and Hong Kong. Looking ahead, however, business is expected to pick up, especially as the bank turns its attention to wealth management, helping new generations of middle-class Asian consumers invest and save. The group also has plenty of experience in the region, having had a presence in Hong Kong and Shanghai since 1865.
Midas Verdict: HSBC is one of the world’s largest banks, with decades of experience in all areas of the market. Its global reach brings many benefits, including exposure to faster-growing economies in emerging markets and the ability to work with multinationals around the world. At £6.45, the bank’s shares offer a tempting yield and long-term growth prospects. Buy and hold.
Listed in: Main market Heart: HSBA Contact: es.hsbc.com
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