HSBC cost-cutting key as revenue growth unlikely, Berenberg says
By Bloomberg
HSBC Holdings Plc needs to deepen cost cuts and simplify its management structure to improve returns to shareholders, who’ve seen insufficient evidence of progress, according to Berenberg Bank.
As Europe’s largest bank prepares to update investors on its strategy on June 9, setting a clear cost-control target is vital because revenue growth is unlikely in a low interest rate environment where companies have taken on too much debt, Berenberg analyst James Chappell said in a note Friday.
“One of the main pushbacks on HSBC is that it is too big to manage,” but “the chief executive officer is one of the few large bank CEOs who recognize the need to simplify their business,” Chappell said, giving the stock a buy rating. “However, a perception remains that HSBC has not changed or even fallen back into its old ways.”
Since 2011, CEO Stuart Gulliver, 56, has sold or closed about 77 businesses to revive profitability and simplify its operations, and is spending billions of dollars to boost compliance following a series of misconduct fines. After revenue declined in 2014, Gulliver listed Brazil, Mexico, Turkey and the U.S. as under-performing divisions that could be sold to help cut costs, as regulators demand larger capital buffers.
“The investor day on 9 June becomes hugely important for HSBC rebuilding its communication to show investors that it has changed,” Chappell said in the note. “In particular, it needs to demonstrate control of its cost base and that it can deliver consistent risk-adjusted returns and dividends. If it can show this, HSBC should return to trade at a premium to the sector.”
The bank, based in London, is also threatening to leave the U.K. over tax increases and the introduction of some of the toughest regulations in the world. Last year the British levy imposed on banks’ global balance sheets cost HSBC 750 million pounds ($1.2 billion), the most among U.K. lenders.
HSBC rose 0.2 percent to 619.2 pence at 9:32 a.m. in London, extending its advance this year to 1.8 percent.
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