HSBC's future is regional rather than global

Colin McLean, managing director of SVM Asset management, comments on HSBC full year results…

“Today’s announcement marks the clearest recognition by HSBC that its future is regional rather than global. Certainly, it will retain UK, US and European businesses, but in investment banking in particular, it lacks scale. The cut in worldwide operating costs at 10-15 per cent goes further than expectations before the announcement, but the unusual arrangement of delivering this via an interim CEO puzzles the market. 

“Having accepted at the end of Q3 that return on tangible equity would miss the 11 per cent plus target in 2020, the expectation of 10-12 per cent by 2022 is just in line with expectations. It may still be optimistic. It is disappointing that the buy-back is suspended during the restructuring programme. The group’s biggest problem is the continued underperformance of its US, Continental European and UK Global Banking & Markets operations. These use almost one third of the group’s risk weighted assets yet generate very little profit.
 
“The share price fall following the announcement suggests the bank has failed to reassure the market. It seems less likely that the interim CEO will get the job permanently. Some investors see Quinn as too much of an insider and not able to stand up to a strong chair but equally there have been too many strategy changes to bring in someone else now. The longer the interim arrangement persists, the harder it will be to convince the market on strategy.
 
“It looks like HSBC is running hard on restructuring but essentially standing still on its competitive position and profitability. The near term earnings outlook is no stronger, and the valuation looks high versus other banks. It makes sense to reallocate capital to higher return markets in Asia where the group makes 90 per cent plus of its profit. But despite the redeployment of capital to Asia, the short term outlook there looks uncertain.”
 

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