HSBC’s goal to restore bank’s return on equity not achievable this decade, say analysts
Longstanding dividend policy also likely to be dropped
In the aftermath of new troubles stemming from Britain’s Brexit, which have just added to HSBC’s existing challenges, analysts have concluded that chief executive Stuart Gulliver’s goal to restore the bank’s return-on-equity back above 10 per cent by 2017 – before the end of his tenure – won’t be achievable this decade.
Further, with earnings forecasted to be challenged for years to come, calls from analysts are growing louder saying the bank’s longstanding policy of paying generous dividends of 51 US cents has become unsustainable.
The grim outlook for HSBC’s future performance has come amid a muted reaction to Bank of England governor Mark Carney’s latest announcement to slash to zero the required countercyclical capital buffer rate that British banks must hold.
The move was sold by the BoE as a dovish policy that would allow the country’s banking sector to free up some £5.7 billion in reserves, which the central bank said could multiply to as much as £150 billion in market lending. But in Hong Kong on Wednesday, the day following the announcement, HSBC’s shares fell 1.16 per cent to HK$46.80, showing that investors viewed the BoE move in a negative light.
“Capital is not the issue – for [HSBC] or its UK bank peers. Loan growth and net interest margins are the challenge,” said Ian Gordon, head of banks research at Investec.
HSBC chief Gulliver had an additional target of delivering a risk-weighted assets (RWA) reduction of around US$290 billion from the bank’s global books. The sale of its Brazil business in June should have helped shave US$37 billion off this target, but the problem so far is that there is little sign the bank is recycling the bulk of the money into actual productive use, say analysts.