Massive revamp may squeeze HSBC returns

Massive restructuring by banking giant HSBC could be about to hit the point of diminishing returns after 2-1/2 years of strategic overhaul.

"The market's expectation on HSBC is too high," Ian Gordon, an analyst at Investec in London, told the South China Morning Post after the bank unveiled first-half pre-tax profit of US$14.1 billion yesterday that missed the market consensus forecast of US$14.6 billion.

"Disposals have started to weaken the bank's outlook on profits," said Gordon, who has a "hold" rating on HSBC and a price target of 740 pence (HK$87.70) on the London-listed shares.

HSBC chief executive Stuart Gulliver has been battling to bang the bank back into shape since 2011, pursuing a plan that has cut about 46,000 jobs and seen the group announce the closure of, or exit from, 54 businesses.

The turnaround has seen the share price soar close to a five-year high in recent weeks, with investors broadly cheered by Gulliver's efforts to streamline and refocus a bank that had become bloated and bogged down in regulatory problems.

HSBC said profit before tax rose 10 per cent in the first half from a year ago. Underlying pre-tax profit jumped 47 per cent to US$13.1 billion while net profit grew 23 per cent to US$10 billion.

Analysts forecast robust earnings-per-share growth of 32.5 per cent for HSBC this year on average, but the risk is the acceleration in profit performance fades more rapidly than anticipated.