HSBC shares plunged 5% on Tuesday. Here’s what I did…

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HSBC (LSE: HSBA) shares have been flying of late. But on Tuesday (5 May), they fell to earth with a bump. What went wrong?

Let’s start by looking at what went right for so long. Investors had identified HSBC as a terrific way to gain access to fast-growing Chinese and Asian market, where it generates up to 70% of its profits. It does so from its comfortable berth on the FTSE 100, where it has to meet exacting corporate governance standards, making it feel a bit safer.

Like all the big blue-chip banks, HSBC has benefited from higher interest rates, which allowed it to widen the margins between what it pays savers and charges borrowers. Having finally shaken off the financial crisis, it was all systems go.

What’s troubling this FTSE 100 blue-chip?

I benefited from the banking stock surge via Lloyds but I wanted to broaden my net and buy another bank or two. Yet I was also wary. After such a strong run, there was bound to be a bump in the road at some point. And HSBC hit it three days ago, when it published Q1 2026 results.

The core business looked pretty healthy, with a 4% rising underlying revenue to $19.1bn. Net interest margins remain high, and its wealth business is powering along. But there was bad news too. The headlines focused on a $400m loss on loans to collapsed shadow bank Mortgage Financial Solutions. This came shortly after rival Barclays reported a $300m loss.

They were further loan impairments, some down to the Middle East conflict. Reported profit before tax fell $100m to $9.4bn year-on-year. I’ve been worried about the shadow banking sector for a while, but that didn’t stop me. HSBC shares dropped 5.2%. Seconds later, I bought them. What was I thinking?

I like buying good companies on bad news

I’ve been hanging on for a moment like this. Yes, Q1 results were a mixed bag. HSBC’s generous share buyback programme remains on hold. Integrating its recent purchase of Hong Kong’s Hang Seng bank will take time and money, and the synergy savings will take time to arrive, if they ever do.

But I wanted more exposure to the banking sector and dismissed these as short-term issues, soon to be forgotten. With luck, I’ll hold HSBC shares for decades. Its one-day dip gave me a chance to nab it at a 5% discount. All the growth and dividends I hope to generate should therefore start from a lower base.

I wouldn’t say it was a blinding bargain. The HSBC share price is still up 50% over the last year, and 190% over five. But with a forward price-to-earnings ratio of 11.2, I think it looks compelling value. And the dividend income looks tempting. The forecast yield is 4.6%. That’s forecast to hit 5.1% in 2027. And at some point, I’d expect those share buybacks to resume.

There could be more Gulf-related volatility, more shadow banking tremors. And if we get them, I know what I’ll do. I’ll buy more HSBC shares.

The post HSBC shares plunged 5% on Tuesday. Here’s what I did… appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of Motley Fool Money. Harvey Jones has positions in HSBC Holdings and Lloyds Banking Group Plc. 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.

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