PROFITABILITY LIMITS
HSBC in alert over investor demands
CEO Stuart Gulliver says investors should brace for 10% return on equity as the new normal
London — Investors need to lower their expectations for bank profitability, as a 10% return on equity (ROE) is probably as good as large universal lenders can do, according to the CE of Europe’s biggest bank. "If you’re a universal bank, much less risky than before, with considerably less leverage," 10% probably is the new goal, HSBC Holdings CEO Stuart Gulliver said. With capital rules still in flux, he said banks have been struggling to answer shareholders’ question "how on earth can you get return of 12% to 13%? Well, you probably can’t." European banks have been trading at less than the net value of their assets since the credit crisis of 2008 prompted an overhaul of financial regulation, requiring lenders to add billions in loss-absorbing reserves. With profitability showing little sign of rebounding to pre-crisis levels amid anaemic growth and low rates, causing investors to shun the sector, regulators such as Mark Carney at the Bank of England have flagged the earnings power ...
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