HSBC: Short-term pain for long-term gain

Given the strength of its competitors’ numbers in this reporting season, investors might have expected HSBC (HSBA) to round off events in some style, but unfortunately the bank has missed the mark.

Slipping to an overall loss for the quarter was largely due to a 13% hike in operating expenses, and even though this in turn was for prudent reasons such as reinvesting in the business in China and in digital, other weaker metrics provided a further drag.

Regionally, Europe and North America fell to a loss, whilst the spectre of US litigation fines looms large, as it has done for others. The return on equity figure remains significantly shy of the 10% target the bank has set itself and currency swings have not worked in its favour.

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Nonetheless, there are, as ever, reasons to be cheerful when taking the wider view. HSBC is famed for the strength of its balance sheet and this remains the case, as partially evidenced by its robust capital cushion at 14.5%.

Revenues overall were higher, with a pleasing contribution out of its Asian operations, from where the majority of its earnings are derived. Retail and commercial both grew lending and benefited from wider deposit spreads, whilst the announcement of a $2billion share buyback scheme will be supportive for the share price.

Source: interactive investor            Past performance is not a guide to future performance

Meanwhile, if investors need to be attracted to the stock in being terms of being paid to wait, the current and projected dividend yield of over 5% fulfils the requirement.

Expectations are always high for this banking behemoth and any disappointment tends to be pounced upon, as evidenced by the initial share price reaction.

Even so, over the last year the shares have added 12%, as compared to a 3.7% jump for the wider FTSE 100 (UKX), and over two years the 62% rise is reflective of a bank whose fortunes have largely recovered.

With more pronounced growth elsewhere in the sector, however, the market consensus of the shares as a ‘hold’ will remain difficult to nudge higher.

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