If you were one of those people who thought that there would be a satisfying resolution to the Brexit situation by now, then you must have been sorely disappointed by recent events. Today, European Union leaders agreed to offer the UK a three-month extension to the Brexit process, moving the deadline back from 31 October to 31 January.
The agreement does state that the UK can leave the EU before the deadline if a deal is approved; however, given that negotiations have gone to the eleventh hour every time previously, there is not too much optimism that the impasse will be resolved before 2020 comes around.
Meanwhile, MPs are set to vote on Prime Minister Boris Johnson’s call for a general election on 12 December. As a reminder, the government needs a two-thirds supermajority yes vote for the election to go ahead, in order to comply with the 2011 Fixed-Term Parliaments Act. It appears that the Labour Party is set to oppose the Prime Minister on this vote.
However, the Liberal Democrats and the Scottish National Party have tabled their own plan to amend the Act to require a simple majority vote to trigger an election. This, they believe, would allow them to call an election on their own terms, and potentially to gain enough seats to trigger a second referendum.
In other words, business as usual in Westminster.
The FTSE 100 is essentially flat on the day, and the pound is still hovering around last week’s highs of $1.29 to the US dollar, as investors and traders wait for today’s voting to finish up.
HSBC
Global banking giant HSBC (LSE: HSBA) is down more than 4% today due to a disappointing trading update. Third-quarter profits fell 24% year on year. Shareholders were also informed that the bank is abandoning its main profitability target for the year – to achieve a return on tangible equity of 11%.
Interim Chief Executive Officer Noel Quinn said that returns in Europe and the US are still below acceptable levels, and has pledged to “simplify” the bank, cutting costs in those underperforming markets.
This makes sense, as 93% of the banking group’s profits last quarter came from Asia, even though the bank deploys less capital there relative to Europe and America. What would this look like? Depending on how serious Mr. Quinn is about taking “decisive action”, we may see significant restructuring at the bank.
Regarding the abandonment of its profitability target, management said that it blamed the economy, claiming that the target was set during a different economic environment. I think statements like this are an excellent example of how difficult it is to predict macroeconomic trends, even for the biggest institutions.
Shares of HSBC are currently trading at 593p a share, their lowest level in almost three years.
