It was an everyday kind of quarter for HSBC: superficially healthy earnings were undermined by a $1.6bn charge to cover a long list of fines, provisions and compensation bills.
By way of variation on a theme, there was news of a possible criminal investigation over tax matters in France.
It can all be filed under “legacy issues”, to use the bankers’ jargon, but the message from HSBC chief executive Stuart Gulliver was unmistakable: the “significant items” line in the profit and loss account will remain significant for some time yet.
He is now walking away from a few financial targets he set only in May last year for the 2014-16 period. A cost-to-income ratio of 55%? Try the “high 50s”, suggested Gulliver. HSBC will soon employ 7,000 people in compliance roles, an increase from 1,700 when he became chief executive in 2010.
As for a return on shareholders’ equity of 12-15%, that now looks out of reach in a world where regulators oblige big international banks to hold more capital.
For the first nine months of this year, HSBC achieved only 9.5%. Gulliver’s targets were based on the assumption of a core capital ratio of 10%; in fact, HSBC currently boasts 11.4%.
It seems Neil Woodford was right. The bank-averse fund manager made an exception for HSBC but then dumped his entire holding in September, citing the spectre of “fine inflation”.
As it happens, HSBC probably got off lightly with $1.9bn in 2012 for failing to prevent Mexican and Colombian drug cartels laundering cash through its branches; BNP Paribas was whacked later with a far bigger sum for busting US sanctions. But other regulatory clouds remain lodged firmly over HSBC.
Note, for example, that the $378m provision for the foreign exchange investigation related only to the UK end of the inquiry. It is the level of any US fine that really worries shareholders. And the seriousness of the new French investigation is impossible to judge at this stage.
The supposed comfort blanket for investors is a dividend yield of 4.5%, plus the assumption that Gulliver will try to stick to his other pledge about pursuing a “progressive” dividend policy.
But, when other financial targets are being quietly abandoned or watered down, a loose dividend commitment is not much to cling to.
Peace under pressure
Still, HSBC’s struggles look modest against those at Standard Chartered, where the share price has almost halved in two years, including a big fall last week after the latest profit warning.
But here comes Martin Gilbert from Aberdeen Asset Management, offering his support to embattled chairman Sir John Peace and chief executive Peter Sands.
There are three points to make about Gilbert’s intervention. First, the trivial one: Gilbert is chief executive of Aberdeen, a role that doesn’t involve managing money.
He should leave public statements about individual stocks to the relevant fund manager, in this case Hugh Young. One assumes Gilbert and Young see Standard exactly the same way, but life is cleaner when everybody sticks to his job.
Second, despite the above qualification, Gilbert’s words will probably achieve their desired effect of giving Peace and Sands some breathing space.
Aberdeen controls an 8.4% stake in Standard Chartered. An on-the-record statement from the second largest holder trumps a dozen off-the-record grumbles from fund managers with small positions.
Third, Gilbert’s dispatch was loyal but not open-ended: “We believe that the current management of Standard Chartered, led by Sir John Peace and Peter Sands, should be given the opportunity to address the bank’s current issues and deal with them now.”
The emphasis in that sentence seems to fall on the word “now”. In other words, Sands had better up his game, pronto.
The main task at the investor presentation in a fortnight’s time is basic for a bank – Standard must demonstrate that, by and large, it has lent to people who can repay.
Last week’s figures revealed an alarming accumulation of bad loans after only a slight economic slowdown in Asia.
Nice try, Ryanair
One suspects there is more to Ryanair’s rip-roaring first-half performance than the decision to try to be nice (or less horrid) to the passengers.
Still, if chief executive Michael O’Leary wants “customer experience improvements” to take the credit for a one-third increase in post-tax profits to €795m, he’s free to try.
It would be a useful service, though, if he’d estimate how much shareholder value Ryanair squandered over two decades by being so objectionable.
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