Company in the news: HSBC

Half-year results from HSBC (LSE: HSBA) were not very good. Profits at the banking giant were down by just over 16%, to £1.9bn. However, it was chairman Douglas Flint who grabbed the headlines, bemoaning that his bankers were frightened to take risks and that this was hurting the bank’s ability to make money.

This is good. Banks are not that profitable – and nor should they be. Despite big profit numbers, HSBC’s return on shareholders’ equity of 9.3% is modest – but it’s probably also no more than you should expect.

The days of juicing up returns by borrowing lots of money and taking on huge risks have gone – hopefully forever.

By the look of things, HSBC is still paying its staff too much relative to the income they generate. Returns on equity could be a lot higher if they were paid similarly to staff at a drug company such as GlaxoSmithKline.

In fact, one of HSBC’s key attractions is that it is less risky than many of its peers. It comfortably funds its loans from customer deposits and doesn’t rely on more risky wholesale borrowings.

It offers a yield of 5%, which looks safe unless profits collapse, and it trades slightly above its net asset value. You won’t get rich owning the shares, but it’s a good source of income.

Verdict: buy for income

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Party's over for Putin

The only portfolio safe from Russia's rout

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Hedge fund manager Hugh Hendry: 'It felt like the sun rose only to humiliate me'

In a series of three short videos, Merryn Somerset-Webb talks to Hugh Hendry, manager of the Eclectica hedge fund, about everything from China to the US, Europe, and Japan.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


19 December 1932: BBC World Service begins

The first royal Christmas message by George V gave the fledgling World Service an early boost six days after it was founded in 1932.