Banking on growth.
HSBC plc (HSBC) - Get Report said Monday that it plans to boost technology investments in order to spark growth and improve profitability in its global operations and said it would maintain its current dividend and possibly buyback shares over the near term.
In a strategy update published Monday, Europe's biggest bank said it would invest between $15 billion and $17 billion in "growth and technologies" and pledged a return on tangible equity of 11% by 2020. The investment plan, however, is "subject to achieving positive adjusted jaws each financial year", a reference to the bank's ability to increase income faster than expenses rise. HSBC also said it would buyback shares, if necessary, to offset the prior issuance of scrip dividends.
"After a period of restructuring, it is now time for HSBC to get back into growth mode," said new CEO John Flint. "The existing strategy is working and provides a strong platform for future profitable growth. In the next phase of our strategy we will accelerate growth in areas of strength, in particular in Asia and from our international network."
- Jim Cramer's Investing Rule #5: Diversify to Control Risk
- Jim Cramer: Should We Abandon Quarterly Guidance?
HSBC shares were marked 0.14% higher in London following the strategy update and changing hands 730 pence each, a move that trimmed its year-to-date decline to 4.8%. That compares to a 10.8% slide for the Stoxx Europe 600 Banks index but still leaves investors questioning Flint's plans to "pivot" the bank to focus on developing markets in Asia will avoiding a sustained rise in costs, largely in its retail divisions in Britain and China.
HSBC posted pre-tax profit for the three months ending in March of $4.755 billion, a figure that missed analysts' forecast and fell 4% from the same period last year thanks to what the bank called "higher operating expenses", which rose 8% on a currency-adjusted basis to $8.2 billion, creating what banking analysts call a 'negative jaws ratio' where expenses rise faster than income.
The bank also said it will raise between $5 billion and $7 billion this year as part of an ongoing effort to improve its capital base, which was pegged at 14.5% on a so-called common equity tier one ratio at the end of last year, with Flint telling investors on a conference call in April that "in light of the growth opportunities that we currently see" the firm would buyback $2 billion in shares in a program that would start "start soon."
HSBC said Monday its plans assume a CET1 ratio of 14% or higher between 2018 and 2020, "mid single digit growth in revenue, low to mid-single digit growth in operating expenses" and a 1% to 2% annual rate of growth in its risk-weighted assets.
"We expect this to result in an improvement in reported revenues as a % of reported average RWAs from c.5.9% in 2017 to c.7% by 2020," the bank said.