Zak Mir on the ”Bad Banks” Sweep: HSBC and Standard Chartered

I have just picked out Lloyds Banking (LLOY) as my monthly pick for Spreadbet Magazine in March. But you will have to wait for the stance I have on the company and its shares for a couple of weeks.

As a consolidation prize it seems fair to take a look at its peers in the banking sector, who now – more than any other time since the financial crisis – appear to be split down the middle in terms of their fortunes. The irony is that those groups who were cautious and did not bet the farm in casino banking style are currently those who appear to be on the back foot fundamentally.

Unless you have been hiding under a rock over the past few weeks, or hiding with your money in the vaults of a Swiss bank, it would have been impossible to miss the news regarding HSBC’s (HSBA) alleged help on tax efficiency for its clients. The world’s self proclaimed local bank seems to have overstepped the mark on customer service, and a grilling in the media and mega fines are likely to be the result. Cynics such as myself might suggest that we were rather overdue a scandal like this, as the normal rate over the post financial crisis period has been at least a couple of significant LIBOR/PPI type events a year.

What was interesting for HSBC is the way that star fund manager Neil Woodford dumped his stake in September, just a couple of months after acquiring it, on the basis of the “fine inflation” threat. This provides a decent lesson in terms of the best traders and investors being nimble and having the guts to change their mind and avoid disaster when necessary. In this instance it would appear that HSBC may prove to be even worse than he feared. Considering the witch hunt the media already has against both the banks and the rich, we may be looking at a reputational blow which is very hard to shake. This is even by the standards of the banking sector, where the bar is not exactly high.

From a charting perspective it can be seen how a falling trend channel can be drawn on the daily chart from the end of June. The risk now is that at least while there is no end of day close back above the 50 day moving average at 605p we may see an acceleration towards the floor of last year’s channel as low as 510p over the next 4-6 weeks. This would especially be the case if the flat 200 day moving average now at 622p starts to point to the downside over the next few sessions.

The other “bad bank” of the moment is clearly Standard Chartered (STAN), especially if you look at the daily chart configuration of recent months. The interesting aspect here is that even though the fundamentals have not been tainted quite as much as at HSBC, at this point one could actually argue that the technicals appear to be as dire, or even worse. This is because we are still trading well below the as yet unfilled gap to the downside from October. The shares have since then been unable to get to within 75p of the floor of the gap. This would imply that at least while there is no end of day close back above the 975p September price channel top there is the risk of a new leg to the downside at Standard Chartered. Indeed, 750p at the floor of last year’s price channel cannot be ruled out on a 1-2 months timeframe.