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Here's Why You Should Hold HSBC Holdings (HSBC) Stock for Now

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HSBC Holdings plc’s (HSBC - Free Report) extensive global network makes it well positioned for future growth. Moreover, a strong capital position, along with the bank’s impressive capital-deployment activities, is a tailwind. However, mounting operating expenses and lower interest rates might play spoilsport.

HSBC’s extensive global network and several initiatives to improve market share in the U.K. and Asia, particularly Hong Kong and China, are likely to support financials over the long term. In fact, the bank has plans to position itself as a top bank for high net worth and ultra-high net worth clients in Asia. For this, the company intends to hire wealth planners across the region over the next five years. The move is similar to what other global banks, including Citigroup (C - Free Report) , Goldman Sachs (GS - Free Report) and Credit Suisse Group , are undertaking.

Moreover, HSBC plans to restructure its operations in a bid to further improve the operating efficiency. In February 2020, the bank had announced its transformation plan, which is aimed at reshaping underperforming businesses, simplifying complex organization and reducing costs.

Also, the company’s capital-deployment plans look encouraging. After the U.K. regulators permitted the resumption of shareholder distribution, HSBC announced an interim dividend of 15 cents per share for 2020. Further, the bank targets to keep the dividend payout ratio at 40-55% of reported earnings per share from the next year.

While HSBC’s efforts to focus on profitable markets and enhance operating efficiency by divesting/closing non-core businesses led to a decline in costs in 2017 and 2018, expenses flared up in 2019. Moreover, as the company now intends to improve market share in the U.K. and China, as well as strengthen its digital capabilities globally, operating expenses are likely to remain high.

Apart from this, the company’s revenue generation has remained subdued for the past several quarters. In addition, global economic concerns and a low interest-rate environment continue to weigh on its top-line growth.

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