Following the latest global reorganization, HSBC’s new structure is expected to improve costs and accountability, according to a Morningstar report.
HSBC’s latest restructuring has split its global operations into four businesses: Hong Kong; UK; corporate and institutional banking; and international wealth and premier banking. According to a Morningstar report, this is a move in the right direction.
«We have viewed HSBC's sprawling global operations as too complex, a key reason why we downgraded the group to no-moat in 2023,» said Michael Makdad, senior equity analyst at Morningstar.
«Today's announcement to clearly separate Hong Kong and the UK retail bank into their own businesses is positive, in our view. We expect the changes to boost accountability for each of the businesses, identifying underperforming areas more clearly.»
Asian Shareholders, Efficiency Gains
On the breakout of earnings contributions from Hong Kong, Makdad notes that this could help address Asian shareholders' concerns that some global businesses were detracting from the robust profits in the city. He also sees opportunities for efficiency gains from cutting overlaps by simplifying the strategic focus on the corporate and institutional banking as well as the international wealth and premier banking businesses.
«We're keeping our existing forecasts, fair value estimates, and no-moat rating. We already anticipate cost reductions under new CEO Georges Elhedery will help HSBC limit increases in its cost/income ratio despite global inflation and narrowing net interest margins in coming years,» Makdad added.
«There's a 24 percent upside to our fair value estimates of HKD 84.80 and GBX 836 per share, which value HSBC at 1.2 times current book value and 7 times 2024 earnings.»
