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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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
-
Pension warning: one in five don’t know how much is going into their pensionHow to check your pension contributions and why it matters
-
50,000 power of attorney applications rejected – how to avoid common mistakesA freedom of information request shows that thousands of lasting power of attorney (LPA) applications are rejected due to errors. We explain how to avoid mistakes and reveal tips to make the process as straightforward as possible
