HSBC (LSE: HSBA) shares have been in freefall since the £1 purchase of Silicon Valley Bank’s UK arm a little over a week ago. And overall, the FTSE 100 bank’s stock has dropped a staggering 19% in only a month. Should I pick up a few battered shares for a timely bargain, or am I looking at a risky value trap?
A shrewd purchase?
After the run on lender Silicon Valley Bank happened last month, banks worldwide have been in crisis.
The US government averted the worst of the problems stateside by granting a bailout to the US portion of the business. Here in the UK, we watched as HSBC took control of SVB’s UK arm for a pound coin.
To me, that £1 purchase seems a smart acquisition. After all, SVB had the money to fulfil customer transactions The problem was that the cash was tied up in poorly-chosen, long-term investments.
And I don’t expect a liquidity issue to be a tricky problem to solve for a FTSE 100 bank like HSBC with a $3trn balance sheet.
Importantly, it gave the chance to pick up 3,500 tech companies as customers and an estimated £1.4bn in equity for less than it costs me to take a ride on the bus.
And if it’s such a shrewd buy, then it might be a great time for me to snap up some shares. Before jumping in with both feet however, I’m a little concerned that the stock has nosedived 18% since the start of March.
Banks in crisis
A bigger problem for HSBC is that confidence in banks has been shaken, and on a level perhaps not seen since 2008.
Recent events have led to the ongoing collapse of Credit Suisse. The Zurich-based bank needed a £45bn emergency loan from the Swiss government and is to be bought out by USB for a fraction of the market value it had only last week.
Other banks are suffering too. In the last month of trading, shares in NatWest are down 9%, Lloyds 14% and Barclays 24%. I don’t currently own shares in any of them, but I’ve considered buying all of them in the past.
So that could either be a whole host of cheap stocks I could snap up at bargain prices, or possibly end up holding the parcel on a long descent to the bottom.
Maximum panic
“Be fearful when others are greedy, and greedy when others are fearful.” Warren Buffett’s famous quote explains one way to do that most difficult of things, to get an edge in the market.
If I can buy when stocks are undervalued because investors are panicking, I could walk away with great returns. Anyone who bought at the low point of the brief 2020 Covid dip might agree with that.
Yes, the banking sector is in a spot of bother (to say the least), but banks are massive and vital institutions. HSBC has been in operation for 143 years and generates $52bn in yearly revenue. It’s not going away any time soon.
Therefore, the bigger issue for me is whether we’ve hit maximum panic. As it is, I’ll be adding the stock to my watchlist and may pick up some shares in the near future.
The post HSBC just bought SVB for £1. Should I invest in the FTSE 100 bank? appeared first on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
