Despite a quarter that was marked by unrest in the streets of Hong Kong, HSBC reported relatively robust results on Monday (local time) that beat the Street’s expectations. And in addition to announcing a share buyback of $1 billion (which is half the size of last year’s), the bank followed several of its peers in announcing mass layoffs (HSBC will cut roughly 2% – approximately 4,000 jobs – from its global workforce) while also revealing that its CEO John Flint, who has been in the job only 18 months, will leave the bank as its board looks for “a different approach” on growth, resource allocation and execution.
Like many of its fellow global banks, HSBC shares have underperformed during Flint’s tenure, which could be one reason for his sudden departure. Noel Quinn, who has led global commercial banking at HSBC since December 2015, will take over for Flint on an interim basis, SCMP reports. The news sent HSBC shares down roughly 2% to their lowest intraday level in 9 months.
“In the increasingly complex and challenging global environment in which the bank operates, the board agrees that a change is needed – and John agrees – to make the most of the significant opportunities ahead of us,” HSBC’s Chairman Mark Tucker said on a conference call. “This is a decision about the future.”
Flint, 51, joined the bank in 1989 spent his entire career there. He led the lender’s retail banking and wealth management businesses before taking over for retiring CEO Stuart Gulliver in February 2018.
The bank’s board insisted that there hadn’t been a clash of personalities and no disagreement over strategy, but that the bank’s directors had decided it was time for Flint to go.
“There has been no personality clash. There has been no disagreement over strategy,” Tucker said. “This is a unanimous decision of the HSBC non-executives [on the board]. Personalities have not been a factor in this at all.”
Q2 net profit rose 6.8% to $4.37 billion, up from last year’s $4.09 billion. Pre-tax profit increased to $6.19 billion, beating analysts’ consensus estimate provided by the bank of $5.63 billion.
Operating income rose 8.2% to $14.4 billion during the quarter, while net interest income increase increased 1.7% to $7.77 million in the quarter.
Here’s a roundup of analyst comments, courtesy of Bloomberg
KBW, Ed Firth (market perform)
Flint’s departure is the key news and Firth says he’s often been “uninspired” by the “business as usual” strategy under the outgoing CEO
His replacement is more likely to be internal but will have to take a more “dynamic approach” to improving underperforming areas of the bank
While second-quarter numbers are a “comfortable beat,” the outlook is “reasonably downbeat” and pressures are growing for the bank, notably in Hong Kong.
JPMorgan, Raul Sinha (underweight)
Overall the results look solid, with adjusted pretax profit about 8% ahead of company-compiled consensus, but the sheen is taken off this by the announcement Flint will leave after only 18 months in the role
Sinha says Flint’s departure looks to have been driven by the HSBC board seeking to “accelerate change alongside a potentially rapid deterioration in outlook.”
Jefferies, Joseph Dickerson (hold)
The bank benefited from higher HIBOR rates in Hong Kong and tight cost controls but the $1 billion buyback announced looks “token,” given it is at only half the prior year’s level
Outlook statement “points to the challenges the bank faces in terms of interest rates, not to mention the geopolitical risks.”
Hard to see” consensus estimates for 2020 and beyond being revised higher after the results.
RBC, Benjamin Toms (underperform)
Profit was well ahead of expectations thanks to beat on revenue, costs and impairments, but the second-quarter results look “softer around the edges”
The $1 billion buyback was below the $1.5 billion to $2 billion expected in consensus
And “we find the timing a little odd” in terms of the departure of Flint.
Bank of America Merrill Lynch, Alastair Ryan (neutral)
Flint’s departure was unexpected but the results demonstrate it wasn’t due to near-term financials given that second-quarter revenue outpaced expectations.
New buyback is a “positive surprise” as BofAML had removed buybacks from its estimates.
Net interest margin increase and positive operating jaws demonstrate that HSBC is continuing to deliver, but with Flint’s exit and a downgraded outlook, those conditions are set to change.
Global Markets and Global Banking units both likely to need more refocusing and in order to meet its 2020 targets, would expect the bank’s costs and investment levels to be “aggressively managed.”