ii view: HSBC focused on bigger shareholder returns

An ongoing performance improvement plan and forecast dividend yield of 5.5%. Buy, sell, or hold?

Third-quarter results to 30 September

• Revenue down 3% to $11.6 billion (£10.32 billion)
• Profit before tax down 42% to $3.15 billion (£2.8 billion)
• Capital cushion or CET1 ratio of 13.4%, down from 13.6% 

Chief executive Noel Quinn said:

"We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders."

ii round-up:

Founded in 1865 in Hong Kong and now headquartered in London, HSBC Holdings (LSE:HSBA) serves more than 40 million customers in over 60 countries worldwide. 

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It operates across the three arenas of Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets.  

For a round-up of latest results published on 25 October, please click here.

ii view:

HSBC employs over 200,000 people. With a stock market value of close to £100 billion, it sits comfortably above rivals Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and NatWest Group (LSE:NWG), all at under £30 billion. Its previously detailed transformation plan focuses on reshaping its business portfolio, increasing its capital efficiency, and tightly managing costs.

For investors, a highly uncertain economic outlook has seen bad debt provisions back being made. An increasingly strained relationship between the world’s two biggest economies, the USA and China, now cannot be ignored, with Asia in this latest quarter accounting for around three-fifths of overall group profit. Competition across the industry remains high, while potential for governments to raise taxes on the industry to help assist squeezed electorates is also worth remembering. 

• Lloyds Bank: a strong quarter reflects strength and prudent planning
• Barclays’ diversity gives bank resilience in the face of adversity
• Four American banks: buy, sell, hold?

On the upside, progress of its transformation plan is being made with a potential sale of its Canadian business being considered as it continues to review its portfolio. Cost savings of almost $5 billion have been achieved since 2020 and it has exposure to generally faster economic growth in Asia, while an easing of Covid restrictions in China is now rumoured. Finally, the bank is returning to quarterly dividend payments in 2023.

On balance, and with the shares now sat on a forecast dividend yield of over 5.5%, income investors are likely to stay put. 

Positives: 

• Transformation plan being pursued
• Looking to return to quarterly dividend payments 

Negatives:

• Capital cushion reduced
• Heightened political tensions between the USA and China

The average rating of stock market analysts:

Buy