The banking giant is looking to cut costs amid a slowdown in China
Tough times for HSBC
- Shares dropped 5.6% in early trading after bad news this morning
- Fourth quarter and full year figures today showed the impact of the slowdown in China
- Radical plans for cost cuts, with a reduction of 35,000 employees expected in Europe and US within 3 years
- Recommendation: We continue to suggest the shares as a medium to high risk long-term buy for an income geared portfolio
These are certainly tough times for banking giant HSBC. Fourth quarter and full year figures today showed the impact of the slowdown in China, and the company warned that the coronavirus outbreak and disruption in Hong Kong could have an impact on its performance this year. That has led it to announce radical plans for cost cuts and a further reduction in headcount, with another 35,000 employees expected to go in Europe and the US within the next three years. Many of the cuts will fall in the investment banking and private banking operations, with capital shifted towards other parts of the business. While reported revenue rose 5% in the final quarter of 2019, the bank made a loss of $3.9bn. The share buyback scheme has been suspended but the dividend was maintained.
Given all the bad news from HSBC today, it was no surprise to see the shares going down 5.6% in early trading. While the bank is clearly taking action, the changes will take time to feed through into the figures and the degree of uncertainty about current activity levels in a number of areas is likely to dampen sentiment towards the shares for some time. While the background is clearly challenging, HSBC remains a significant dividend payer and we continue to suggest the shares as a medium to high risk long-term buy for an income geared portfolio. However, we would suggest a drip-feed approach in the current environment.
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