5th Aug 2019 11:30
(Alliance News) - HSBC Holdings PLC on Monday said Chief Executive Officer John Flint has stepped from his role by "mutual consent", even as the bank reported "strong momentum" in the first half.
The Asia-focused lender said that Flint's day-to-day duties at the bank will end after Monday but that he will remain "available" to HSBC to assist with the transition to a new boss.
HSBC said it has started the process to find a new CEO, and will consider both internal and external candidates.
In the meantime, Europe's largest bank will be run by Global Commercial Banking CEO Noel Quinn.
Ian Forrest, investment research analyst at Share Centre said HSBC's results were "overshadowed" by the departure.
He said: "The move comes as quite a surprise as Flint has been in the role for less than 18 months, and no reason was given. When a CEO leaves suddenly with no explanation it is always unsettling for investors, especially in the case of a major global company. There will be a lot of questions to come, but the market has taken the news in its stride this morning with the shares recovering quickly from an initial drop."
Shares in HSBC were 1.3% lower in London in mid-morning trade at 637.90 pence each.
Russ Mould, AJ Bell Investment Director added: "At least HSBC's share price has being courteous enough not to go up on the departure of its CEO but this is likely to be of little particular comfort to John Flint, who becomes the fourteenth FTSE 100 boss to leave or announce plans to leave their post (with four of the group set to depart in 2020)."
"What may grate with Flint is that he had the second-shortest tenure of the ten bosses set to leave this year, so he has hardly had chance to make his mark. We may never find out the reason why, but the poor first-half performances from HSBC's US and European operations, and the abandonment of a 2020 profitability target for the American arm, are one possible explanation," continued Mould.
Share Centre's Forrest suggested Flint may not be the only senior figure to leave HSBC.
"There were also reports the bank is considering cutting thousands of more senior roles as it faces a worsening global outlook," said Forrest. "It remains a significant dividend payer and offers a decent 6.4% yield, so we continue to suggest the shares as a medium risk 'buy' for an income geared portfolio, although in the current climate we would favour a drip feed approach."
In its first-half results, HSBC reported a 16% jump in pretax profit to USD12.41 billion from USD10.71 billion a year before.
AJ Bell's Mould said HSBC was able to deliver "solid enough" first-half results, but was concerned with the lender's investment bank performance and the troubling results seen in Europe and the US.
"This increase reflected a rise in revenue of USD2.1 billion, primarily in Retail Banking & Wealth Management from balance sheet growth and wider margins in Retail Banking, and in Commercial Banking from growth in all our major products," HSBC explained.
Profit at HSBC's Retail Banking & Wealth Management unit jumped 24% to USD4.44 billion. The increase, according to HSBC, reflected the impact of higher interest rates on margins in Retail Banking, favourable market impacts in life insurance manufacturing, and disposal gains in Argentina and Mexico.
The Commercial Banking unit's profit expanded 1.3% to USD4.03 billion. The unit saw "broad-based" growth in Global Liquidity & Cash Management, Credit & Lending and Global Trade & Receivables Finance.
The lender did note, however, that its investment bank, Global Banking & Markets, recorded an 18% fall in profit in the half-year. HSBC said the unit suffered from "lower market activity due to ongoing economic uncertainty". Global Banking & Markets made a profit of USD2.82 billion.
HSBC booked a USD828 million gain in the six-month period on the merger of the Saudi British Bank with Alawwal bank in Saudi Arabia.
Regionally, HSBC was powered by its Asia business - where profit grew 4.3% to USD9.78 billion - on a "strong performance in Hong Kong, the Pearl River Delta and Singapore". HSBC said its loan book in Asia grew 5% in the half.
For the six months to June 30, HSBC's group revenue rose 7.6% to USD29.37 billion from USD27.29 billion the year before.
"However, there are two areas of concern, although they are not unique to HSBC and cannot be laid directly at the door of Mr Flint," said AJ Bell's Mould.
First, the lender's sliding margins and growing credit impairments.
Net interest income was slightly higher year-on-year in the first half at USD15.24 billion. Net interest margin, however, was 1.61%, down from 1.66% a year before.
"This measures how profitable HSBC's loan book is, as HSBC borrows money in the short term (or attracts deposits) at one interest rate and then loans the cash out at a higher interest rate over the long term," explained Mould.
HSBC's loans & advances to customers increased in the half-year to USD1.02 trillion from USD973.44 billion the year before. The bank's customer accounts at June 30 was broadly flat at USD1.38 trillion.
Mould continued: "The problem now is that as central banks look to cut headline rates, the yield curve is flattening and the gap between short and long-term rates is narrowing. That squeezes the banks' net interest margin and hurts profits and HSBC is feeling that squeeze."
HSBC's credit losses & other impairment charges more than doubled to USD1.14 billion, compared to USD407 million the year before.
"This looks to be the single most powerful theme of the interims season from the Big Five FTSE 100 banks," said Mould. "RBS, Barclays and Lloyds showed a similar trend to suggest that we may have passed the bottom for the loan loss cycle and that only way is up from here (albeit thankfully from what is still a low base)."
"That in turn may explain why the banks still look cheap on the basis of book value, as investors are seem to be wary of the quality of their loan portfolios and thus their assets."
For the first half, HSBC's return on average tangible equity stood at 11.2%, up from 9.7% a year prior.
For the six months ended June, the jaws ratio was at 4.5%. The jaws ratio - a key financial performance indicator - is the difference between the percentage growth in income and the percentage growth in expenses.
Group operating expenses decreased 2.3% to USD17.55 billion from USD17.15 billion the year before.
The CET1 ratio for HSBC ended the period at 14.3%, an increase from 14.0% at December 31. The lender reported a 2.4% rise in risk-weighted assets to USD885.97 billion.
HSBC declared an interim dividend of 0.31 US cents, unchanged from the year before.
Looking ahead, HSBC warned its US business will be unable to achieve its 6% return on tangible equity target in 2020, "given the prevailing outlook for interest rates and revenue headwinds in Global Banking & Markets and Retail Banking & Wealth Management".
HSBC added: "Interest rates in the US dollar bloc are now expected to fall rather than rise, and geopolitical issues could impact a significant number of our major markets. In the near term, the nature and impact of the UK's departure from the EU remain highly uncertain."
HSBC is still targeting a group return on tangible equity target of above 11% in 2020.
"We will not take short-term decisions that could jeopardise the long-term health of the business," HSBC added, saying it is managing its operating expenses and investment spending to counteract the "increased risks to revenue".
Related Shares:
HSBC Holdings