The HSBC Holdings (LSE: HSBA) share price fell 5% Tuesday morning after the bank revealed at 33% profit fall for 2019. That’s helped push the shares down 16% in the past 12 months, and down 25% since a high in January 2018.
Pre-tax profit, at $13.3bn, was a third lower than the 2018 figure of $19.9bn. And it’s even 22% below 2017’s figure of $17.2bn. The global banking giant put the shortfall down mainly to a $7.3bn in writedowns at its Global Banking and Markets and Commercial Banking arms in Europe. And that’s due, in part, to the bank having lowered its long-term economic growth rate assumptions for the region.
There are further one-off charges amounting to $2.8bn, including expected credit losses, up $1.1bn from similar charges a year previously.
Overall revenue actually rose by 5.9% to $55.4bn, which HSBC said reflected “good revenue growth in Retail Banking and Wealth Management, Global Private Banking and Commercial Banking.“
Since his appointment as interim CEO in August 2019, Noel Quinn has been shaking things up quite dramatically. His restructuring plans are targeting “more than $100bn of gross risk-weighted asset reductions, a reduced cost base of $31bn or lower, and a group return on average tangible equity of 10% to 12% in 2022.”
Cost cutting is going hit the headcount, with a likely loss of around 35,000 jobs from the bank’s worldwide total of 235,000 over the next three years. Job losses had been widely expected, but the scale of the cuts is far bigger than feared.
Should we have expected the extent of the planned restructuring for HSBC? Well, whenever a new CEO takes over at a company that’s under pressure, it’s perhaps wise to expect something drastic. A change of leadership can be a perfect time for a good spring clean, and a new boss can expose the full extent of a company’s problems without shouldering the blame.
HSBC’s size and global reach are strengths in some ways, but they can count against it when changes are needed. The sheer inertia encountered when trying to redirect a company this big must be immense.
But it has to be done, and Quinn is doing it. But is HSBC back into a good enough shape to make its shares a buy?
The bank has reported earnings of 30 cents per share and declared a dividend of 51 cents per share. That’s a yield of 7%, and forecasts suggest the same for 2020 and 2021. With the 2019 dividend not covered by stated earnings, there must be fears that future payments could come under pressure.
Global economic weakness could last for some time, and I think HSBC’s transformation is likely to take a few years to produce results. Just remember that inertia. My first instinct is to see HSBC as one to stand back and watch, but I come back to that dividend.
I can’t help feeling the board will do its utmost to keep the dividend going, even if it’s inadequately covered by earnings for a couple of years. If it is maintained, HSBC could be a top income investment, even now.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.