HSBC To Focus On Growth And Expansion For Higher Profits

With a view to boost profitability, HSBC Holding plc’s (NYSE:HSBC) CEO John Flint has announced plans to invest about $15-$17 billion in technology and expansion of operations by 2020.

Flint expects the second phase of bank’s turnaround to be aggressive on growth in order to deliver profits in the years ahead. He acknowledged that the past strategies have created a strong base for future growth.

The CEO also disclosed some financial goals that the company aims to achieve by the end of 2020. Return on tangible equity (RoTE) of more than 11% is targeted along with assumption of CET1 ratio above 14% level. The company will keep dividends at the current level but might undertake share buyback programs in the near term.

These financial targets are expected to be achieved between 2018 and 2020, with support from mid-single digit growth in revenues, low to mid-single digit rise in operating expenses and 1-2% annual increase in risk-weighted assets.

Eight Strategic Pillars

HSBC has laid down eight strategic priorities to drive its financials. It targets to improve performance with special focus on building operations in Asia including Hong Kong in order to deliver high-single digit revenue growth every year from the region.
In the U.K., HSBC aims at increasing mortgage market share along with growing commercial clients base. It also seeks to improve clients’ satisfaction by serving them better.

The company also wants to build upon its market share in transaction banking and deliver mid-to-high single digit revenue growth per annum from its international network. Moreover, it aims to improve the efficiency of its U.S. operations by targeting a RoTE of more than 6%.

In a strategy update published Monday, Flint noted that, "After a period of restructuring, it is now time for HSBC to get back into growth mode.” The company plans to be more capital efficient and use the excess capital by investing in technology. Through this investment, HSBC targets to get a strong hold on digitization and further expand reach.

While these initiatives might lend some respite to the bank, struggle with revenue slump owing to low interest rates and stringent regulatory requirements is likely to continue. Also, the company’s legacy business misconduct matters have resulted in several litigations and probes.

In three months’ time, the stock has gained 1.6% on the NYSE against 8.6% decline recorded by the industry.

HSBC currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are Credicorp Ltd. (NYSE:BAP) , Banco Santander (MC:SAN) Chile (NYSE:BSAC) and The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Credicorp has been raised nearly 1% for the current year, in the last 60 days. The company’s share price has jumped more than 32% in the past year.

Banco Santander Chile has witnessed stable earnings estimates for 2018, in the last 60 days. Its share price has risen more than 25% in the past year.

Bank of N.T. Butterfield & Son’s shares have gained more than 39% in a year. Its earnings estimates for 2018 have moved up 3.5% in the last 60 days.

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