Hargreaves Lansdown (LON: HL), the highly shorted British financial services company is in trouble. Its stock plunged by over 8% on Tuesday as it came under more pressure from the Financial Conduct Authority (FCA). In all, the company, which is about to be booted from the FTSE 100 index, has crashed from 2,040p in 2019 to 720p today.

Hargreaves Lansdown is one of the most shorted companies in London. It has a short interest of almost 5% and is in the same company as firms like Petrofac, Kingfisher, Boohoo, and Asos.

The HL stock price tumbled on Tuesday after the FCA wrote a letter to investing and trading platforms about cash balances in their accounts. The regulator is concerned that these companies are double-dipping and hurting customers.

Ideally, these companies are using customer deposits to make money through interest and also charging them for cash. The issue has become more widespread now that interest rates have risen to the highest point in years.

As a result, these companies are using these balances to invest in short-term government bonds and earning a return. In the United States, this is not wrong, which explains why companies like Schwab and Robinhood have reported strong interest income.

Cash has become a key part of HL. In the last financial year, its cash revenue jumped to £268 million from the previous £50 million as rates rose. Other parts of its business like funds, shares, and funds deteriorated.

Hargreaves Lansdown has been going through a challenging period in the past few years because of the challenging British economy. The FCA has also increased regulations in the industry, especially after it introduced the customer duty rules. It also scrapped fees across key solutions.

The most recent results showed that the company added 8,000 new customers in its September quarter. This addition brought its total customer count to over 1.8 million and its retention rate to 91.7%.

Hargreaves Lansdown’s revenue rose to £183.8 million while the share dealing volume averaged about 634k per month, down from 700k in the same period in 2022. Its cash balances stabilised at about £12.4 billion at the end of the quarter.

The company faces a challenging period ahead as the volume of UK stocks retreat and the economic slowdown continues. The FTSE 100 index has underperformed its American and European indices have risen. 

In the US, the Nasdaq 100 index has jumped by over 40% this year while the S&P 500 index has risen by more than 20% this year. 

HL chart by TradingView

The weekly chart shows how deep the HL stock price has fallen. It has dropped from 2,040p in March 2019 to 690p. It has remained below the 50-week and 25-week moving averages while the MACD has moved below the neutral point.

The stock is sitting at a crucial support level, where it has failed to move below since June 13th of 2022. Also, the Relative Strength Index (RSI) has moved below the neutral point of 50. Therefore, the outlook for the stock is bearish, with the next support level to watch being at 600p.

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