HSBC Bounces Back After Blue Monday
by ETX Capital’s market strategist, Ishaq Siddiqi.
ETX Capital offer financial spread betting on equities, indices and forex.
HSBC shares rebounded on Tuesday, a day after sliding on the back of full year earnings which fell short of expectations. Pre-tax profits were down by 6% in 2012 from the previous year but the bank has pledged to increase its dividend on strong growth in Asian markets. Looking past the numbers though, HSBC, like its UK peers, is attempting to turn a page in its story after being embroiled in a number of recent scandals.
The results included around $5.2 billion of write-downs on debt and around $1.9 billion to settle US claims of money laundering in the Middle East – the largest penalty ever paid by a bank – and deals with Mexican drug lords. The bank has also set around $1.4 billion to compensate customers who were mis-sold PPI, another blow to its reputation.
As a result of these penalties, HSBC’s CEO Stuart Gulliver has had his bonus deferred, and it could even be clawed back. His total pay package is worth around £7.4million, up from £8 million. Some believe he shouldn’t receive his bonus, which is just under £2 million, but the bank’s earnings growth looks intact as 90% of its earnings are made outside of the UK.
With these penalties now settled and out of the way, a major overhang on the stock price has been removed for now, with traders likely to focus on HSBC’s ongoing cost cutting and disposal programme. The bank is attempting to de-leverage itself in the wake of the recent scandals that have hit the City and investors are likely to take some comfort in this attempt to rebuild trust.
But HSBC’s story is one that investors have always expressed their excitement over – although the bank fell short of expectations on the headlines, it is clearly looking to build revenues once again now that a chunk of businesses have been disposed of. This, tied with the fact that its Asian and emerging market operations continue to outpace the rest of the world, suggest the bank is on the path to double-digit growth in the years ahead.
The stock rose a staggering 28% last year on these reasons alone, discounting news of the scandals. Now the negative news is out of the way, I believe that a similar if not stronger stock performance is likely in 2013, with HSBC once again cementing its place as one of the giants of the UK banking sector.
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