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Banking: Assaf sets positive tone for HSBC

Lost amid disappointing 2016 results, HSBC’s Global Banking and Markets (GB&M) division has already hit the group 10% return on equity (ROE) target and holds out hope for more to come.

Samir Assaf-300

Samir Assaf, chief executive of GB&M

When HSBC published full-year 2016 results at the end of February, investors saw reported profits of $7.1 billion, much lower than the $18.9 billion reported for 2015, amid a $12 billion muddle of so-called exceptional items, including big goodwill write-offs, fair value own credit spread adjustments, restructuring costs and currency translation effects.

While underlying revenues were roughly flat and the bank remains sufficiently well capitalized – with a 13.6% CET1 ratio and 5.4% leverage ratio – that it continues to buy back stock while paying dividends, investors didn’t like this one bit.

The price of HSBC shares, which had closed at £7.12 the day before results, fell more than 9% to £6.46 by the end of results week before later recovering to £6.65 in early March. HSBC had reported an 8.1% group return on tangible equity for 2015. This fell to just 2.6% for 2016.

Bullish analysts tried to pick out some bright spots: the promise of stronger earnings this year from higher net interest income if the Fed keeps hiking as widely predicted; evidence of stronger asset quality in Asia than some of its peers and the hope off falling provisions as well as the longer-term pay off from lower operating costs resulting from investments being made today in costs to achieve.

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