From Breakingviews: HSBC’s investment bank is the only unit that’s really growing. With low interest rates sapping revenue in its core retail businesses, CEO Noel Quinn will have to cut more costs than previously planned, LiamWardProud says $HSBA
Second-quarter results on Monday showed that the investment banking business is the only one that’s really growing. Revenue from trading fixed income, currencies and commodities surged by 79% year-on-year to $2.1 billion. Yet even that stellar performance couldn’t offset a slump in retail and commercial banking revenue, where lower central-bank interest rates dragged down net interest income.
Quinn’s problem now is two-fold. First, investment banking is hardly a dependable earner: HSBC’s traders benefitted from a boom in volatility and wider bid-ask spreads in the second quarter, which have since eased. Other businesses, including its core Hong Kong unit, seem unlikely to pick up the slack given the territory’s deep economic contraction and political unrest. Second, anticipation of bad debt is eating into profits to a much greater extent than originally forecast. Quinn booked a $3.
The upshot is that Quinn’s restructuring programme, unveiled in February and which targeted a 10% to 12% return on tangible equity in 2022, will need to be bigger. Analysts expect HSBC to have about $158 billion of tangible equity that year. To achieve the lower end of the return target, Quinn would need $15.8 billion of earnings.
The only lever available to Quinn is costs. He’s admittedly making progress on his original restructuring plan: adjusted expenses fell by 7% year-on-year in the second quarter. But to make good on his longer-term returns ambition, he’ll need much more.Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day.
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HSBC Profits Plummet 65% As Coronavirus Batters Europe’s Biggest BankI am a breaking news reporter for Forbes in London, covering Europe and the U.S. Previously I was a news reporter for HuffPost UK, the Press Association and a night reporter at the Guardian. I studied Social Anthropology at the London School of Economics, where I was a writer and editor for one of the university’s global affairs magazines, the London Globalist. That led me to Goldsmiths, University of London, where I completed my M.A. in Journalism. Got a story? Get in touch at isabel.togohforbes.com, or follow me on Twitter bissieness. I look forward to hearing from you.
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