HSBC - Gulliver's Travails

HSBC: If my old compliance officer found out that I had non-dom status and had $5m stashed in a Swiss numbered account using a Panamanian front, I would be doing a lot of explaining. So it will, or at least should, be for Stuart Gulliver, CEO of HSBC. Recent revelations about their Swiss private bank subsidiary paint a picture of a company without a grip on its subsidiaries thanks to a devolved management style. This tarnished image was already in mind after the reign of Stephen (Lord) Green, following the loose lending policies in North America before the banking crisis (but they were not alone in that), becoming embroiled in drug-related money laundering accusations in Mexico and getting caught in the forex rigging scandal. What a way to start celebrating your 150^th anniversary.

So today’s ever complicated annual results for 2014 are somewhat overshadowed by the rotten PR. Anyway eps were 69c (44.8p at £:$1.54), down from 84c, whilst the dividend is 50c (32.47p), up 2.0% on 2013. The earnings decline reflected, in part, “fines, settlements, UK customer redress and associated provisions”. This is hardly the stuff of Blue Chip quality. Whilst adjusted revenue was flattish ($62bn v $61.9bn), operating expenses were up 6.1% showing just how hard the bank is paddling to stay still at present. The highlighted CRD IV Tier 1 ratio crept up from 10.8% to 10.9%, but the return on equity was a skinny 7.3% against 9.2% in 2013. Their revised medium term (so multi-year) targets are for these numbers to reach a return on equity of 10% on a Tier 1 CRD IV capital ratio of 12%-13%.

Previously I have leant towards the line that the future is brighter, HSBC is tilting back towards the (longer term) faster growing Asian regions and is a well-capitalised, global leader. Meanwhile, a 32.47p dividend on a sagging 575p share price is a 5.6% yield to keep you warm while you wait. That is still very true, but who knows if Gulliver can restore any sense of moral authority and will this hobble his ability to perform the role of Chief Executive? Management upheaval, the regulatory doghouse and a patchy world economy could all conspire to delay financial progress for shareholders. The yield is tempting, but this is now one for the patient investor, ready for the long haul. (Neil Cumming^, 23^rd February 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower