HSBC’s long-term Asian bet is proving an uphill struggle
CEO John Flint received a lukewarm reception earlier this year when he said he planned to invest $17bn to build HSBC’s presence in the region and improve technology
Hong Kong/London — HSBC is struggling to produce any significant revenue growth from its long-term bet on Asian markets.
Second-quarter adjusted revenue advanced 2% from a year earlier to $13.7bn, HSBC said on Monday. That was below the average estimate among three analysts surveyed by Bloomberg.
Costs, meanwhile, increased 7% as CEO John Flint stepped up investments in areas such as technology. The shares gave up some earlier gains after the results were announced.
Flint, promoted to CEO in February, plans to grow the global behemoth by expanding in key Asian markets including China and establishing the lender as a top-tier wealth manager.
Flint’s plan earlier this year to invest $17bn to build its presence in the region and improving technology was met with a lukewarm reception, amid concern about how long cost growth would outpace revenue and hold back the dividend.
HSBC shares were up 0.5% at 1.37pm in Hong Kong, after rising 1.5% ahead of the midday trading break. The stock has slipped 9% this year.
Like UK rival Standard Chartered, HSBC has struggled to consistently deliver revenue gains that outpace cost increases — what analysts refer to as positive jaws.
Still, Flint expressed optimism that revenue gains will pick up, allowing HSBC to fulfil a promise to deliver positive jaws for the full year.
HSBC’s net interest margin, a measure of loan profitability, rose three basis points to 1.66% in the first half from the previous six months, led by gains in Asia. The region accounted for two-thirds of adjusted pretax profit in the first half.
"The significant benefit we have this year is the balance sheet has grown and net interest margin is expanding," Flint said in a phone interview on Monday.
"Both factors give us confidence that the net interest income for the group should continue to grow through the second half of the year."
Jefferies analysts led by Joseph Dickerson took a more cautious view, calling the 2% group-level revenue growth "paltry" and saying in a note that the stock was "likely to be in a holding pattern until evidence of delivery on operating leverage".
HSBC has defended the increased investments and costs as necessary to exploit Asia’s growth potential, and that of China in particular.
Finance director Iain Mackay said in an interview with Bloomberg Television that costs were "absolutely in line" with where the company expected to be, and HSBC was being deliberate about investing in areas where it expects growth.
"We are sitting in a pretty sensible place," he said.
Pretax profit on an adjusted basis was $6.11bn, slightly ahead of the $6.05bn average estimate of analysts surveyed by HSBC.
The company announced a second-quarter interim dividend of 10c per share. HSBC also announced a $765m penalty in the US over a probe of residential mortgage-backed securities.