HSBC Bankers, get ready for lower premiums

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(More Bank Opinion) – HSBC Holdings Plc makes a promise: cost control is done without layoffs.

The promise – announced by chief executive John Flint on Tuesday – may sound like wishful thinking, given the growing list of obstacles to the bank's revenue growth.

For investors, this means that HSBC will have to reduce its growth faster than last year's 5% gain, slow down investments or reduce costs. A starting point would be employee bonuses. A hiring freeze now seems inevitable, with 235,000 full-time and part-time employees at the end of December, up from 229,000 the previous year.

On Tuesday, HSBC recorded a 1% decline in pre-tax adjusted earnings of $ 3.39 billion for the quarter ended December 31, missing consensus of $ 4.4 billion. In the context of Brexit and the proliferation of price threats, the bank also fought against the slowdown in securities trading, as did its peers, according to Jonathan Tyce, a More Bank Intelligence analyst. Even insurance sales dropped, an embarrassing result for a lender chaired by AIA Group Ltd. and Prudential Plc veteran Mark Tucker.

The results were the first annual figures reported by Flint and Ewen Stevenson, who was poached by the Royal Bank of Scotland to replace Iain Mackay in December.

Over the past year, HSBC's shares have underperformed the entire market: cost control is one of the few areas in which we can make a difference. The bank has some work to do. Jaws, which measures revenue growth relative to costs, fell unexpectedly to -1.2%, up from 1% a year earlier. Stevenson promised that this year will be positive.

In an interview with More Bank TV on Tuesday, the director said the company had already slowed growth in its workforce. Meanwhile, other plans to limit spending are underway. In June, Flint announced that the bank planned to invest up to $ 17 billion to expand its major Asian markets and improve its technologies. It plans to spend about two-thirds by 2020. The bank will struggle to achieve this goal. and reduce costs.

And despite all the talk about HSBC's commitment to return capital to its shareholders, it has not announced a new buyback program. It is unlikely that such largesse will be repeated so soon.

Problems also persist on the revenue side. In its main market, Hong Kong, which accounted for 31% of revenue last year, competition is intensifying. Virtual banks are expected to gain ground in the city, where HSBC dominates. Late in the evening of Monday, a Beijing issued a bill linking the former British colony to Macao and nine other Chinese cities – the so-called Greater Bay Area. His proposal to establish an international commercial bank in Guangdong is a challenge for HSBC itself.

To be fair, the bank still managed to show decent results in Hong Kong. The city's revenues increased 14% in 2018 to $ 18.2 billion from $ 16 billion a year earlier. Even the real estate market, which had a mini-rout at the end of last year, has not suffered too much: mortgages have increased by $ 3 billion in the city, while loans have globally increased by $ 6 billion.

Although its star is linked to the Chinese expansion in 2015, it is the turmoil that most worries the leaders of the London bank: "We are more concerned about the United Kingdom than Hong Kong or China," he said. said Stevenson. For a company founded more than 150 years ago to finance international trade, it is not trivial that the biggest migraine of the bank is the trade war, the Brexit and the region of the great bay of China .

To contact the author of this story: Nisha Gopalan at ngopalan3@More Bank.net

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@More Bank.net

This column does not necessarily reflect the opinion of the Editorial Board or More Bank LP and its owners.

Nisha Gopalan is a More Bank Opinion columnist specializing in transactions and banking. She previously worked for the Wall Street Journal and the Dow Jones as a writer and journalist.

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