Company in the news: HSBC

Profits at high-street bank HSBC have disappointed, says Phil Oakley. But the shares still offer a decent yield.

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in Features

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.

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By the look of things, HSBC is still paying its staff toomuch relative to the income they generate. Returns on equitycould be a lot higher if they were paid similarly to staff at a drugcompany such as GlaxoSmithKline.

In fact, one of HSBC's key attractions is that it is less risky thanmany of its peers. It comfortably funds its loans from customerdeposits 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 getrich owning the shares, but it's a good source of income.

Verdict: buy for income

Phil Oakley

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.

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