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Follow up on our HSBC call of October 12th:

Recent negative newsflow for HSBC (HSBA, 702p) is now mostly in the price.

‘The extent of the slowdown in the Chinese economy became clearer on Thursday when the government disclosed that the rate of increase of industrial production had dropped to the lowest level in seven years’ (Source- FT.com November 13th 2008).

The FT goes on to say ‘Four days after unveiling a massive fiscal stimulus programme, the government said that industrial production increased by 8.2 per cent in October – well below forecasts’.

I suspect that the market now knows much (if not all) of what the HSBC directors knew back in early October when they sold their shares (see followthedirectors comment of October 12th ‘ HSBC- Directors Sell- ‘Credit tightening’ now hitting China growth’).

In the four weeks since our October 12th comment, HSBC are down 10% while the FTSE 100 is up 9%.

For all our comments on HSBC click here.

In HSBC (HSBA, 790p) I see a strong, well managed, diversified global bank, with a higher exposure to the growth markets of Asia than its (now nationalised) compatriots on the London Stock Exchange.

I notice though the first significant signs of Chinese slowdown in the announcement on Thursday by Australia Iron Ore producer Mt Gibson (MGX, 71c)  that their Chinese customers want to delay shipments.

In their statement (link to co website) Mt Gibson say ‘ Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities’.

Whose ‘credit facilities’ I wonder, the Chinese or their Western customers? 

I also notice directors share sales at HSBC, wth a DD John, a ‘PDMR’ (senior manager but not group board member) selling 61434 shares at 907p on October 1st.

Reviewing other directors sales over the past twelve months I find  sales taking place at between 766p and 884p between October 2007 and June 2008 totalling around 400,000 shares or GBP 4m.  Directors who have sold include Hughes Hallett (non exec), Almeida (non exec), Green (Chairman), Flint (CFO), and Geoghahan (CEO). For full details go to www.digitallook.com or to the HSBC company website.

I wonder how long HSBC can weather the storm that banks in the rest of the world are currently embroiled in. I think the price levels at which share sales by six directors took place are a good indicator of a medium term peak level for HSBC shares.

Signal: Negative- Directors selling

Signal Strength: MEDIUM

October 17: Anecdotal information on the Chinese economy from a contact in Hong Kong:

Second largest Chinese port shows exports down 14% since July.

40% of the Chinese toy companies are now insolvent.

Also see: ‘Credit crisis casts gloom over China’s exporters’ (October 14th, Associated Press)

For subsequent comments on HSBC (November 10th and November 14th) see here.

 

Eric Daniels, CEO of Lloyds TSB Group (LLOY, 300p) has decided to step up to the plate by investing almost £300,000 of his own money in Lloyds shares.

Daniels on August 1st increased his position in Lloyds TSB by about 27% by buying 100,000 shares at 296.5p, taking his holding to 473,000 shares. For a great article on Daniels and Lloyds success in dire market circumstances read this article, published in the Telegraph today (link here).

Daniels colleague, Chairman Victor Blank, has invested roughly the same amount, buying 100,000 shares at 294p, increasing his position by 50% to 300,000 shares.

Despite Daniels making £2.7m a year (source : Daily Telegraph) I consider these moves to be significant, especially if Daniels is a ‘cautious’ individual. I would like to see more puchases, from Daniels and Blank, and hopefully other board members, to reinforce this signal.

At the moment the signal strength rates as MEDIUM.

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