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Restructuring, Solid Capital Position to Aid HSBC's Growth
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HSBC Holdings plc’s (HSBC - Free Report) strong capital position, initiatives to strengthen digital capabilities, an extensive network and improvement in operating efficiency through business restructuring will likely keep aiding growth. Exiting the U.S. and French retail banking operations is expected to help the company focus more on Asia.
The Zacks Consensus Estimate for HSBC’s current-year earnings has been unchanged over the past 30 days. Its 2023 earnings estimates have been revised marginally upward. The company currently carries a Zacks Rank #2 (Buy).
Over the past year, shares of HSBC have gained 3.5% against a 5.4% decline recorded by the industry.
Image Source: Zacks Investment Research
HSBC’s transformation plan is aimed at reshaping underperforming businesses, simplifying complex organization and reducing costs. As part of this initiative, the company expects to incur $6.5-$7 billion in charges, and achieve at least $5.5 billion of cost savings by 2022-end and an additional $0.5 billion of savings next year.
The company has been undertaking measures to bolster its performance, with a special focus on building operations in Asia, including Hong Kong and China. In sync with this, it acquired 100% of the issued share capital of AXA Insurance in Singapore for $529 million and agreed to acquire L&T Investment Management Limited for $425 million. The bank also started an exclusive fund focused on the metaverse for its private banking clients in Hong Kong and Singapore.
Moreover, HSBC intends to position itself as a top bank for high-net-worth and ultra-high-net-worth clients in Asia.
Despite the uncertain macro-environment, HSBC remains strong with respect to its capital position. As of Sep 30, 2022, the company’s capital ratios were strong, driven by steady capital generation. HSBC aims to continue identifying and removing “low-return” risk-weighted assets. The RWA savings are anticipated to exceed $120 billion by 2022-end.
Based on a stable capital position and lower debt-equity ratio compared with the industry, HSBC has been consistently rewarding shareholders. In February 2022, the company approved an interim dividend of 18 cents per share, making a total of 25 cents per share as dividends for 2021. In August 2022, it approved an interim dividend of 9 cents per share for the first half of 2022, which was paid out on Sep 29, 2022. Also, the bank intends to revert to paying quarterly dividends in 2023. The company expects a dividend payout ratio of 50% for 2023 and 2024.
However, because of HSBC’s focus on growing market share in the U.K. and China, as well as strengthening digital capabilities globally, its costs are expected to be high in the near term, thereby hurting profits to an extent. The company’s revenues declined, seeing a CAGR of 6% over the last three years (2019-2021), with the downward trend continuing in the first nine months of 2022. This makes us apprehensive about its growth prospects.
The Zacks Consensus Estimate for S&T Bancorp’s current-year earnings has been revised 2.1% upward over the past 60 days. Over the past three months, STBA’s share price has increased 16.3%.
Mid Penn Bancorp’s current-year earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 2.8% over the past three months.
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Restructuring, Solid Capital Position to Aid HSBC's Growth
HSBC Holdings plc’s (HSBC - Free Report) strong capital position, initiatives to strengthen digital capabilities, an extensive network and improvement in operating efficiency through business restructuring will likely keep aiding growth. Exiting the U.S. and French retail banking operations is expected to help the company focus more on Asia.
The Zacks Consensus Estimate for HSBC’s current-year earnings has been unchanged over the past 30 days. Its 2023 earnings estimates have been revised marginally upward. The company currently carries a Zacks Rank #2 (Buy).
Over the past year, shares of HSBC have gained 3.5% against a 5.4% decline recorded by the industry.
Image Source: Zacks Investment Research
HSBC’s transformation plan is aimed at reshaping underperforming businesses, simplifying complex organization and reducing costs. As part of this initiative, the company expects to incur $6.5-$7 billion in charges, and achieve at least $5.5 billion of cost savings by 2022-end and an additional $0.5 billion of savings next year.
The company has been undertaking measures to bolster its performance, with a special focus on building operations in Asia, including Hong Kong and China. In sync with this, it acquired 100% of the issued share capital of AXA Insurance in Singapore for $529 million and agreed to acquire L&T Investment Management Limited for $425 million. The bank also started an exclusive fund focused on the metaverse for its private banking clients in Hong Kong and Singapore.
Moreover, HSBC intends to position itself as a top bank for high-net-worth and ultra-high-net-worth clients in Asia.
Despite the uncertain macro-environment, HSBC remains strong with respect to its capital position. As of Sep 30, 2022, the company’s capital ratios were strong, driven by steady capital generation. HSBC aims to continue identifying and removing “low-return” risk-weighted assets. The RWA savings are anticipated to exceed $120 billion by 2022-end.
Based on a stable capital position and lower debt-equity ratio compared with the industry, HSBC has been consistently rewarding shareholders. In February 2022, the company approved an interim dividend of 18 cents per share, making a total of 25 cents per share as dividends for 2021. In August 2022, it approved an interim dividend of 9 cents per share for the first half of 2022, which was paid out on Sep 29, 2022. Also, the bank intends to revert to paying quarterly dividends in 2023. The company expects a dividend payout ratio of 50% for 2023 and 2024.
However, because of HSBC’s focus on growing market share in the U.K. and China, as well as strengthening digital capabilities globally, its costs are expected to be high in the near term, thereby hurting profits to an extent. The company’s revenues declined, seeing a CAGR of 6% over the last three years (2019-2021), with the downward trend continuing in the first nine months of 2022. This makes us apprehensive about its growth prospects.
Other Stocks Worth Considering
A couple of other stocks from the finance space worth a look are S&T Bancorp (STBA - Free Report) and Mid Penn Bancorp (MPB - Free Report) . STBA and MPB currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for S&T Bancorp’s current-year earnings has been revised 2.1% upward over the past 60 days. Over the past three months, STBA’s share price has increased 16.3%.
Mid Penn Bancorp’s current-year earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 2.8% over the past three months.