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The money-house’s profits were hit by fines and settlements that totalled $2.4 billion, and this caused profits to plummet to their lowest level in over two years. 2014 was a ‘challenging year’ for the bank, as the cost of compliance stacked up, and its global banking and markets unit struggled. This was due to a lower risk appetite and an absence of market volatility, which led to a 38% drop in profits at the investment bank division. That said, this reporting season we have witnessed a pick-up in trading revenue from most of the major investment banks, and this could be replicated by HSBC.
The bank is still focused on de-leveraging itself, and asset-stripping is kept in step while the bank withdraws from non-core countries and regions that are deemed to be higher risk. Tighter regulation has forced HSBC to beef up its internal procedures department in terms of headcount, and it is now impacting the bank’s capital structure. HSBC is at the top end of British banks when it comes to being well financed, but the company cut its return on equity target from a range to 12-15% to 'more than 10%’.
The Swiss tax evasion scandal put a major dent in HSBC’s reputation, and the cost of that episode will hang over the bank for years to come. Prior to the Swiss story emerging, HSBC had one of the better reputations of the London-listed banks, and now it has been knocked off its pedestal.
HSBC recently stated that it is considering relocating its headquarters from London, and the additional rules that British banks must adhere to were cited as the reason behind the possible move. The UK’s membership of the EU is also uncertain at the moment, and the UK general election will make that clearer in the near future. HSBC will have more opportunities to make higher profits if it relocates its headquarters outside of the UK, but the whole story sounds like it is running from away from regulators.
When HSBC reports its first-quarter numbers, the market is expecting revenue of $15.75 billion and adjusted net income of $4.45 billion. The fourth-quarter numbers came in below estimates, and revenue was $14.4 billion and adjusted net income was $2.15 billion, while the market was anticipating $15.37 billion and $4.03 billion respectively.
Equity analysts are bullish on HSBC, and out of the 40 ratings on the stock, ten are buys, 17 are holds, and ten are sells. The average target price is £6.20, which is marginally lower than the current price. Investment banks are also bullish on Standard Chartered, and out of the 37 recommendations, 12 are buys, 14 are holds, and 11 sells. The average target price is £10.28 which is 3% below the current price. Out of the big five London-listed banks, HSBC sits in third place in terms of broker ratings, Barclays has no sell ratings attached to it, and 33% of the ratings on RBS are sells.
HSBC’s share price has more than recovered from the fall on the back of its final-year numbers in February. The stock is receiving support at £6.40, and if that mark is held the resistance at £6.65 will be the target, and a move through it will put £7 on the radar. A drop below £6.40 will bring the 200-day moving average of £6.20 into play, and the next level of support will be £6.