HSBC can’t shrink its vast banking empire fast enough to satisfy investors

HSBC can’t shrink its vast banking empire fast enough to satisfy investors

By Jason Karaian @jkaraian February 24, 2014

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The numbers: What’s $2 billion between friends? Last year, banking giant HSBC generated $22.6 billion in pre-tax profits, up 9% from the previous year, it reported today. But analysts were looking for a result closer to $24.6 billion; the bank’s share price sank by nearly 4% at the London open.

The takeaway: Although HSBC is making progress on restructuring, cutting costs, and boosting profitability, it is not doing it fast enough in investors’ eyes. The bank’s goal to introduce a “leaner and simpler” group has featured the sale or closure of 63 business units over the past three years, resulting in 20,000 job cuts and a reduction of $95 billion in risk-weighted assets. Still, HSBC still employs 254,000 people overseeing $2.7 trillion in total assets, and revamping a group of this size takes time; it cut operating costs and boosted return on equity last year, but in both cases fell short of both internal targets and market expectations.

What’s interesting: The size and complexity of HSBC’s financial statements continue to mirror its sprawling operations, defying the group’s pledge to introduce greater simplicity to its business. The parent company’s latest annual report runs to a whopping 598 pages, up 50 pages from the previous year and more than 200 pages longer than 10 years ago. The group’s complicated legal structure also requires several of its subsidiaries to issue separate reports, which themselves routinely run into the hundreds of pages. Anyone who claims that they have a good handle on HSBC’s vast business empire is either being economical with the truth or has a lot of time on their hands to read through novel-length reports of dense legalese.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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