HSBC stocks jump – is its cost-cutting plan already paying off?

HSBC’s shares bounced this week after the latest results showed the bank had lifted pre-tax profits by 11% in the third quarter, “significantly beating downbeat expectations”, says Patrick Hosking in The Times. The bank said this was due to “strong performances in wealth, personal banking and parts of the investment banking division”. HSBC also promised a further $4.8 billion in distributions to shareholders through buybacks and dividends. CEO Georges Elhedery reaffirmed his plans to winnow out senior ranks of the bank “at pace”, though he “emphatically” ruled out any break-up of the group.

HSBC’s latest good results have certainly cheered shareholders, say Selena Li and Lawrence White on Reuters – the shares are now at a six-year high. However, experts still warn HSBC still “needs to explain more about the financial implications of its overhaul”, which involves merging divisions as well as dividing management along East-West lines. Elhedery has declined to comment on how much the revamp will save the bank in costs, or how many senior roles may be cut. Instead, he argues that any cost savings will be an “ancillary benefit” from simplifying the management of the bank and removing duplication of roles.

Elhedery is right to be cautious about costs, says Lex in the Financial Times. Any saving from cutting HSBC’s “expensive layer of senior bankers” is going to be limited. Even the purported figure of $300 million looks small in comparison to the $3.8 billion of bonuses it handed out in 2023. Similarly, while separating Asian from Western operations may sound logical, a large chunk of the money it makes in the region “comes from deals that originate overseas from international clients”. Overall, there is a very real risk that Elhedery’s plans end up being one of those “grand global restructuring announcements” that HSBC has made many times before.

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What is the state of Britain's other banks?

It’s been a “pretty decent earnings season all round” for the UK banking sector, says AJ Bell’s Russ Mould. NatWest, Lloyds and Barclays all revealed unexpectedly high profits, too. Considering the tougher environment of “falling interest rates and softening economic growth”, shareholders should be “more than satisfied”. Meanwhile, “the absence of any signs of stress among their core customer base” also bodes well.

Perhaps the only cloud on the horizon is the Court of Appeal’s ruling in favour of a claimant who sued Close Brothers over the failure to disclose commissions paid to car deals for car loans, says Hargreaves Lansdown’s Matt Britzman. This suggests that the Financial Conduct Authority (FCA), the City regulator, could take a “harsher view” in its wider investigation into motor finance commissions. If upheld, the verdict would hit Lloyds particularly hard, with a total liability of up to £2 billion, though even then the broader Lloyds investment case “looks solid”.

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