This week I am looking at global banking and financial services giant HSBC. The company has come under scrutiny from analysts over the last six months due to concerns over its future revenue growth, the impact of slowing economic growth in China, growing US-China trade tension and fears of a global economic slowdown. Closer to home, “Brexit” has also been a worry for the company and its UK- listed peers.
Over the past few years, HSBC has placed emphasis on strengthening its balance sheet. This involved reducing downside risk by taking a conservative approach to credit risk and liquidity management whilst increasing its capital buffer to meet new stricter capital requirements introduced by regulators. The group has also been working on improving returns by cutting costs and increasing efficiency. In an effort to streamline operations, the bank has exited unprofitable markets and has redirected capital to higher return opportunities such as Asia, which has been a key growth market in recent years. HSBC has its strongest global presence in the region, which accounts for approximately 80% of pre-tax income and it seems well placed to benefit from urbanisation, growing trade in Asia and the continued development of the Asian middle class.
The globally diversified operations of HSBC resulted in the bank performing better than many of its peers during the global financial crisis. With a stronger balance sheet and higher exposure to growing markets, the group now appears in a more advantageous position than most other UK-listed banks. However, over the last few years, despite having held an attractive dividend yield of 6% through some tough periods, the bank has struggled to deliver any real consistent profit growth. Consequently, HSBC still has the essential task of demonstrating to investors that it can increase earnings consistently and grow its dividend.