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HSBC boss steps down as the bank issues cautious outlook

HSBC said it plans to launch a US$1bn share buyback “shortly”

HSBC -
HSBC reported a 15.8% increase in pre-tax profit for the first half

HSBC Holdings PLC (LON:HSBA) chief executive John Flint has stepped down after the bank said a “change is needed to meet the challenges that we face”.

The lender said Flint, who was promoted to the top job in February 2018 and has worked at the group for 30 years, has resigned the role by “mutual agreement” with the board.

"In the increasingly complex and challenging global environment in which the bank operates, the board believes a change is needed to meet the challenges that we face and to capture the very significant opportunities before us,” said chairman Mark Tucker.

HSBC has kicked off the process to find a new chief executive and is considering internal and external candidates. In the meantime, the head of HSBC’s global commercial banking arm, Noel Quinn,will assume the role of interim chief executive.

Profit and revenue rise in first half

The bank made the announcement as it reported a 15.8% increase in pre-tax profit to US$12.4bn for the six months to June 30 on revenue up 7.6% to US$29.4bn, led by growth in its main market of Asia.

Revenue growth in the retail banking and wealth management (RBWM) and the commercial banking businesses offset a decline in the global banking and markets (GB&M) unit, which saw lower market activity as a result of economic uncertainty.

Flint said: "I have agreed with the board that today's good interim results indicate that this is the right time for change, both for me and the Bank. After almost 30 years with HSBC, I will be sad to leave but I do so looking forward to a new personal challenge, and confident that our people will continue to serve the Bank's stakeholders in the best possible way."

In its interim results, HSBC said it plans to launch a US$1bn share buyback “shortly”.

The bank ended the first half with a common equity tier 1 ratio – a key measure of financial strength – of 14.3%, up 30 basis points from December 2018.

The net interest margin, the difference between interest earned on loans and money paid on deposits, fell to 1.61% from 1.66% due to tough competition in mortgages.

HSBC issued a cautious outlook for the 2020 financial year, saying US interest rates are now expected to fall, geopolitical issues could hurt a “significant number of our major markets” and the impact of Brexit remains “highly uncertainty”.

Cautious outlook 

As a result of the outlook for interest rates and revenue headwinds facing the GB&M unit and RBWM divisions, the bank does not expect to meet its 6% return on tangible equity target in the US by 2020.

 “We expect some recovery from first-half market conditions in GB&M in the second half of 2019 and into next year, and  continue to target a RoTE above 11% in 2020, but we will not take short-term decisions that could jeopardise the long-term health of the business.”

Shares in HSBC fell 1.2% to 638p in morning trading.

Leadership change 'seems strange', says analyst

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Flint’s departure and a cautious outlook statement are overshadowing what he sees as a "strong set of results".

"Flint’s only been in the role 18 months, and while his strategy might not be revolutionary it’s certainly not been a disaster, it seems strange to be changing leadership again before reforms have had a chance to bed in," he said.

"With the retail bank doing well when others are struggling, and the outlook for the investment bank set to improve, the change of leadership could be particularly confusing.

"However we think the very cautious outlook statement might provide the explanation. With macroeconomic and geopolitical headwinds mounting, the HSBC board could be looking for more radical reform, what that will look like remains to be seen.”

Quick facts: HSBC

Price: 286.7 GBX

LSE:HSBA
Market: LSE
Market Cap: £58.39 billion
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