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.
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.
A deteriorating outlook for global economic growth and in particular a slowdown in the emerging markets to which the bank is most heavily exposed are a key concern.
About 65.8 per cent of HSBC's pre-tax profits came from Hong Kong and the rest of Asia-Pacific in the first half and some analysts fear a decline in business prospects as the mainland economy struggles through a soft patch.
"There has been a slowdown in faster-growing markets in recent quarters, even emerging markets go through business cycles," Gulliver said. "But the reality is those markets continue to grow relatively quickly."
But some analysts are beginning to factor in an impact on the bank's bottom line in the months ahead.
"Asian profit growth will likely fall to 3 per cent on a half-year basis," one London-based banking analyst, who could not be identified due to internal compliance reasons at his institution, said when asked for his outlook for the second half of the year.
With most asset disposals already announced or complete, the biggest gains have already been made, which means the challenge now is to see organic growth drive the business in a generally lacklustre global business climate.
Underlying loan impairment charges shrank 29 per cent from 2012 and the bank noted an improvement in developed markets, but it substantially raised provisions in Brazil and Mexico.
Five of the six regions HSBC operated in saw a gain in profits, with Hong Kong and the rest of Asia-Pacific making a marked contribution to the group.
Net interest margin fell 0.1 percentage point further from the end of 2012 to 2.17 per cent. Gulliver said the outlook would depend largely on the global monetary policy environment.