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Taxpayer-owned Royal Bank of Scotland (RBS) surprised the market by turning to its first profit in ten years, but it is still exposed to big legal cases in the US, after mis-selling financial products linked to risky mortgages.
Meanwhile, Barclays was arguably the worst performer on paper after sinking to a hefty loss, but seemed to win over shareholders by promising to hike its dividend next year.
HSBC, which emerged the most unscathed from the financial crisis, returned to revenue growth and continued to grow profit, but dividends remain stagnate and shareholders were disappointed by the lack of any buyback being announced.
That decision was further emphasised by the decision made by Lloyds Banking Group not only to raise its dividend but launch a share buyback too, even it profit didn’t grow as much as expected.
While HSBC’s incoming chief executive is waiting until the next set of interims to update shareholders on his strategy, both Lloyds and RBS unveiled investment plans to make their banks better suited to the digital world.
HSBC shares hit by lack of returns
HSBC’s 2017 annual results show the bank ‘finally seems to be over the hump’, according to Hargreaves Lansdown.
The performance in its key region of Asia is improving, helping the bank to buck a six-year long slump in revenue and report healthy profit growth. The amount of bad loans dropped by nearly one-third, and return on equity rebounded from just 0.8% in 2016 to 5.9% to move it closer to its 10% target.
HSBC reported the first growth in annual revenue since 2011, rising 7% on a reported basis to $51.4 billion after all three of its core divisions experienced growth. Reported pre-tax profit more than doubled to $17.2 billion from just $7.1 billion in 2016, when its Brazilian arm (which has since been sold for a loss) dragged on results.
However, with HSBC’s investment case boiling down to shareholder returns, many were disappointed. The bank’s dividend remained stagnate (flat at $0.51 for the third year running), and its plan to issue between $5.0 billion to $7.0 billion of additional Tier 1 capital in the first half of 2018 means it was unable to launch a new share buyback due to listing rules.
The bank’s Common Equity Tier 1 (CET1) ratio, which measures its ability to handle a crisis, was already above its 13% target last year at 13.6%, and this rose in 2017 to 14.5%, doing nothing to enthuse investors.
Shareholders were further disheartened by a series of charges. HSBC said it is being investigated over alleged tax evasion in at least five countries, resulting in a $604 million provision being booked, but warned that figure could rise to as much as $1.5 billion in the future. It also booked a large amount of impairments in the final quarter from the collapse of UK construction group Carillion and an accounting scandal at South African retailer Steinhoff International.
It was the last set of results to be presented by chief executive Stuart Gulliver, who said the bank’s ‘Pivot to Asia’ plan that he launched in 2015 had been completed with eight out of ten targets delivered on time and on target. Over 75% of profit now comes from Asia, ticking up from 73.6% in 2016, and $6.1 billion of costs have been stripped out of the business since 2015 to shore up its financial position.
John Flint, the bank’s former head of global retail banking, took over the reins on 21 February, but said he will wait until HSBC’s next set of interim results to divulge the bank’s future plans to shareholders. Hargreaves Lansdown predicts ‘2018 should be the year HSBC proves its move East can really pay dividends.’
HSBC shares continue to drop back from the January high of £7.99. Possible support comes in at £7.15 and then £7.05, as the shares continue to trade within a range between £7.10 and £7.70. A drop below £7.05 could see £6.18 come into play, further eroding the gains made since mid-2016.