On Aug 5, we issued an updated research report on HSBC Holdings plc HSBC. Shares of this London-foreign bank have recorded a year-to-date return of 1.4%. We believe this growth story has been aided by HSBC’s extensive global network, restructuring initiatives, cost-saving measures, enhanced capital deployment activities along with strong capital and liquidity position.
Earlier in August, HSBC reported net profit for first-half 2015, which grew 10% year over year to $13.6 billion. However, earnings came in at 48 cents per share, down marginally from 50 cents earned in the prior-year period. Results benefited from an increase in revenues and lower loan impairment charges, partially offset by a persistent rise in operating expenses, raising doubts over the success of HSBC’s cost-saving initiatives. Further, the results included $1.1 billion of legal provision mainly related to a probe surrounding the alleged rigging of foreign exchange rates.
With an intention of focusing more on profitable markets, in June 2015, HSBC initiated another round of its cost-cutting program with a target to lower expenses by $4.5-$5 billion by the end of 2017. In order to reach this target, the company plans to trim nearly 22,000-25,000 jobs globally as well as divest unprofitable operations.
Given its stable capital position, HSBC has been consistently paying dividends. The company did not stop paying dividend even during the financial crisis. It had last increased its interim dividend in 2013 by nearly 11.1% to 10 cents per share and has maintained the same level since then. Further, the company expects to maintain a dividend payout ratio of 40%–60%. The company also plans to resume share repurchase activities going forward.
On the flip side, a bleak European economy, higher litigation costs and stringent regulations will likely keep HSBC’s financials under stress.
Over the past 7 days, the Zacks Consensus Estimate has increased 8% to $4.45 for 2015 and slightly to $4.50 per share for 2016. HSBC currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked foreign banks worth considering include Banco Macro S.A. BMA, Banco Santander (Brasil) S.A. BSBR and Mizuho Financial Group, Inc. MFG. All three stocks carry a Zacks Rank #1 (Strong Buy).
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