United Kingdom

22 Feb 2017

HSBC stock plunges, Chief Executive gets more bonus

In the modern business world a bank has the ability to announce an annual 62% drop in pre-tax profits and the Chief Executive might call it “broadly satisfactory”. And this is not the end because he gets awarded with a new bonus plan for the next 2 years that will bring his reward up to 9.7 million pounds.

HSBC stocks dropped by more than 6% in the London stock market, the most since August 2015. The reason of the drop was the announcement of a 3.4 billion dollars pretax loss for the quarter and the adjusted profit falling short by 1.2 billion dollars compared to what analysts expected. HSBC, which is the sixth largest bank in the world, reported that the losses were an outcome of the selling of its Brazilian operations (Banco Multiplo) and the write-off of the remaining goodwill at its Global Private Banking arm in Europe.

At the same time, HSBC announced an increase of the annual incentive pay for Stuart Gulliver, the Chief Executive of the bank. The reason is that he managed to hit targets for paring expenses and assets while he fell short of a profit goal. Gulliver, who is one of the oldest members of the HSBC administration, has stepped up efforts to slash expenses and return capital to shareholders. He is one of the few managers that will see his income increased while the bonus pool has been reduced considerably trying to make divisions  more competitive.

Gulliver stated that he expects new challenges in 2017 because of geopolitical developments, trade barriers and political uncertainty. Douglas Flynt, Chairman of HSBC, warned that the bank is going to face risks due to the economic policies of the new United States administration and the expected beginning of negotiations between United Kingdom and the European Union. These statements don’t seem to soothe the worries of the analysts though.

Chris Wheeler, an analyst from Atlantic Equities, said on BBC that HSBC is a bank that still is in transition after the crisis that hit the financial sector in 2008. Mike Amey, a top analyst of Pimco which is one of the biggest funds in the world, reported that investors were unhappy when they read that HSBC would buy back stocks worth 1 billion dollars while they expected about 2,5-3 billion dollars. Ian Gordon from Investec described the announced results as “very grim”. He also added that in order to offset the falling profit margins, the bank will have to continue with the planned cut costs.

HSBC is considered one of the greatest banks of the world. It has been hit by the banking crisis of 2008 and from the famous Swissleaks scandal in which the bank was found to help customers hide great amounts of money in Swiss accounts. In an effort to become profitable again, the management has decided the shutting down of 62 more UK branches that will be added to the 226 already closed in 2016. There is also a plan for the cut down of 8.000 workplaces in the United Kingdom which will result in 5 billion pounds of savings. The Chairman of HSBC, Douglas Flynt, has said in an interview that Brexit might press the bank to relocate 1.000 employees from London to Paris over the next 2 years.