In June 2015 HSBC announced a significant reshaping of its business to capture future growth opportunities and adapt to structural changes in the operating environment. It has itemised 10 action points to do this and aims to achieve an ROE greater than 10% by 2017, revenue growth greater than cost growth and a progressive dividend. H115 results demonstrate the task facing HSBC and some early signs of progress. H115 PBT increased 10.4% year-on-year on a reported basis and 2.2% on an adjusted basis. HSBC shares have felt the influence of concerns about a slowdown in Chinese growth and its volatile equity markets, and declined 9% in the last three months. Management remains confident about the underlying resilience of Chinese growth. The dividend was maintained at $0.2/share.
In February 2015 HSBC announced its revised financial targets and in June 2015 announced 10 actions that it will undertake to achieve them. Detailed plans have been prepared and will cost US$4-4.5bn to implement, some of which will be incurred in 2015. There are some early signs of progress, with the sale of the Brazilian business announced in August 2015 and a $50bn reduction in RWA (17% of target) achieved in H115. Many investors are waiting for HSBC to make an announcement about a possible relocation of its headquarters away from London. The company has confirmed that it intends to complete its review by year end.
Reported PBT in H115 increased 10.4% y-o-y to $13.6bn and, on an adjusted basis after allowing for currency and significant items, the increase was 2.2%. Asia performed strongly in H115, with profits rising 19% y-o-y on a reported basis and around 8% on an adjusted basis. The strong performance of the Chinese stock market in H115 benefited equity and investment-related revenues, while FX trading revenues increased 21% y-o-y on the back of increased currency volatility. Loan impairment charges remain very low. ROE in H115 was 10.6%, above the 10% target, while the tier 1 capital ratio increased to 11.6% from 11.1% at end FY14.
HSBC offers investors a good yield and some valuation upside potential if it can deliver on its cost reduction initiatives and change market perceptions about its profitability and growth prospects. This could happen if it delivers on its plans to reshape its operations around its Asian strengths.