Invezz.com - HSBC (LON: LON:HSBA) share price continued its slow recovery this week as investors focused on the upcoming management changes at the biggest bank in Europe. The stock jumped to a high of 665p on Tuesday, its highest point since August 1.
Overhaul to continue
HSBC’s overhaul is expected to continue when Georges Elhedery starts working there on September 2.
In a report by Bloomberg, the upcoming CEO has already identified areas to reduce wastage and improve efficiency in the bank.
For example, he has proposed removing many middle-layer managers, including reducing the number of country heads in its network. He also wants to implement changes to the reporting structure.
His actions mirror those that other major global banks like Citigroup and Standard Chartered (LON:STAN) have done in the past.
In 2023, Citigroup’s Jane Fraser announced a major overhaul that aims to reduce the number of workers by thousands. By March, the bank had shed 5,000 workers across its network and the goal is to cut 20,000 in the next 2 years. It also shed 1,500 managerial roles.
HSBC’s actions are aimed at making it a more profitable company as central banks in key countries start cutting interest rates. In Hong Kong, a key market, the central bank is expected to slash rates in September when the Fed does it. Hong Kong’s de-facto central bank follows what the Fed does because of the currency peg that exists.
In the UK, the Bank of England has already slashed interest rates, moving them from 5.25% to 5.0%. Similarly, in Europe, the European Central Bank (ECB) has delivered one and is expected to cut more this year.
Interest rate cuts tend to hurt banks because they lower the net interest margin i.e, the difference between rates generated when they lend and what they pay to depositors. The margin grows wider when interest rates are rising.
HSBC has been simplifying its operations
HSBC has been implementing a turnaround strategy for a while. Under Noel Quinn, the bank started its pivot to China, where it hopes to compete with the likes of ICBC, Bank of China, Hang Seng Bank, and UBS.
As part of the turnaround strategy, the bank has sold some of its biggest businesses. It sold its Canadian retail network to Royal Bank of Canada (RBC) in a c$13 billion deal. It also sold its US mass market to Citizens Bank after struggling to compete with local giants like Citi and JPMorgan (NYSE:JPM).
HSBC has also sold its French retail operations to CCF, and most recently, it sold its Argentinian business as the economy implodes. It took a $1 billion hit from that sale. It is now working to sell its South African business.
At the end of this process, HSBC will be primarily a UK and China-focused bank. The company also wants to be a major player in the wealth management business that has become highly profitable for rivals like UBS and Morgan Stanley (NYSE:MS).
These actions are happening after the bank won a major battle with Ping An, a leading shareholder who advocated separating it into two companies. One would house its Chinese business while the other one would have its European and global business.
HSBC’s is doing modestly well
I believe that HSBC’s actions are welcome since it has now left some of its top lagging market and that the impact of these results will get better over time.
The most recent results showed that its revenue rose by 1% in the first half of the year to over $37.3 billion. Its net interest income (NII) declined to $1.4 billion, meaning that the impact of high rates is falling.
The company’s NII was also affected by disposals, especially its Argentina business. Additionally, there are signs that many customers moved their deposits from the bank to higher-yielding money market funds.
Profit before tax rose to $16.5 billion. As a result, the company boosted its dividends and has initiated a $3 billion share buyback.
Therefore, fundamentally, the ongoing changes, coupled with the bank’s 7% dividend yield makes it a good investment for income-focused investors.
HSBC share price analysis
Turning to the weekly chart, we see that the HSBA stock price has bounced back in the last few years. It has surged from a low of 223p in 2020 to over 664p today. In this period, it has formed an ascending channel and is now at its middle.
The stock has remained above the 50-week and 100-week Exponential Moving Averages (EMA). Therefore, the stock will likely continue soaring as buyers target the upper side of the channel at 715p.
This rally will happen as investors wait for the strategy by the company’s incoming Chief Executive Officer.
This article first appeared on Invezz.com
