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HSBC Falls on the (Mostly) Good News

HSBC's return on ordinary shareholders' equity was 12% during the first half, increasing from 10.5% a year earlier.

The company said its Basel III Tier 1 common equity ratio was 10.1% as of June 30, leaving it "well positioned with respect to the implementation of Basel III capital standards."

HSBC's shares closed at $57.97 Friday, returning 12% this year, following a 46% return during 2012. The shares trade for 11.9 times the consensus 2014 earnings estimate of $4.87 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $6.10.

Despite the company's success in growing earnings while lowering expenses, Bank of America Merrill Lynch analyst Alistair Scarff on Monday reiterated his neutral rating on HSBC in a note to clients.

"There is nothing we can see in the latest financial report that undermines the strategic goals of underlying business growth, cost containment and a strong balance sheet," Scarff wrote. "However, we believe the 1H 13 results do highlight that HSBC is a long-dated stock: margins are still falling; overall volumes are not yet growing rapidly enough to deliver stable Net Interest Income. Cost reductions are hard-won and impairment declines not linear."

According to Nomura analyst Chintan Joshi, HSBC's "clean" profit before taxes was $12.8 billion for the first HALF OF 2013, shy his firm's estimate of $12.9 billion. Joshi rates HSBC a "buy."

"HSBC's story is driven by costs and capital in an environment of Asian macroeconomic headwinds," Joshi wrote in a note to clients on Monday. "On a clean basis, costs are developing better than consensus expectations, giving the company operating leverage when revenue trends improve."

"We see the group on track for a high 50s payout ratio for the coming few years," Joshi wrote, while estimating HSBC would achieve a Strong Basel III Tier 1 common equity ratio of 11.5% by 2015.

HBC Chart HBC data by YCharts


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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