24th February 2014
HSBC shares dropped by 4% in mid-morning on the back of the group’s full year results, which saw the bank deliver a 9% uplift in profits writes Philip Scott.
This morning the firm reported pre-tax profit of $22.6bn (£13.6bn) for 2013 up from $20.6bn (£12.4bn) in 2012. However the numbers have fallen short of the City analyst forecasts of some the $24.5bn anticipated.
The group also reported that earnings per share and dividends per share in respect of the year were US$0.84 and US$0.49 respectively, compared with US$0.74 and US$0.45 for 2012.
The firm has sold off or shut some 20 divisions in the past year as part of a cost-cutting drive while unsurprisingly given the bank’s focus, Hong Kong and Asia Pacific were the two primary regions responsible for lion’s share of the group’s profits.
Stuart Gulliver, chief executive officer at HSBC enjoyed a higher bonus package, at £8m. In a statement, he said: “By continuing to deliver our strategy in 2014, I am confident that we can make further progress towards establishing HSBC as the world’s leading international bank
“The HSBC Group today is leaner and simpler, with strong potential for growth.”
Looking at today’s results, Filippo Alloatti, senior analyst at Hermes Credit says: “Pre-tax profit came in at the lower end of estimates and the market is concerned about bottom-line growth.
“Other than emerging market’s exposure the market will also most likely focus on outlook for top line growth and potential for further cost cutting.
“Since 2011 $4.5bn has been taken out of the cost base and headcount has been reduced by 28,000. Additional cost cutting in growth regions, such as Asia Pacific are open for debate as well. Especially considering peers are still investing.
Given the recent scandals that have plagued the industry, including PPI, money laundering, and LIBOR, compliance and regulatory costs will only continue to increase adds Alloatti. He says: “ In fact, at Q3 they were up by a marginal $500m. The question is, whether this will meaningfully reduce the volatility of future earnings. In terms of reserving for claims, HSBC has cumulatively put aside more than $4bn in provisions for its UK customer redress since 2011; some $2bn should still be on its book.”
Over the past year the group’s stock has loosened by 9%, and by 4% in the past six months alone but ahead of the results the broker consensus according to Digital Look, has the shares rated a ‘buy’, with Investec having recently reiterated its ‘buy’ recommendation while Deutsche repeated its ‘hold’ position.