What's going on?
HSBC, the huge London-based bank with a big presence in Asia, reported a mixed bag of results on Monday – revenue rose more than research analysts were expecting, but so did costs…
What does this mean?
Following the 2008 financial crisis, HSBC focused on slimming down its global operations. The idea was, primarily, to rein in its costs – and it largely succeeded. But the bank’s new diet threatened its ability to generate revenue and, by extension, profits. Part of the subsequent strategy to boost its revenue has involved significantly expanding its presence in Asia.
The strategy appears to be working, as the bank said on Monday that profit from its Asian operations rose 10% versus a year ago, a substantial move. The downside, however, was that its costs (in other areas of the bank) increased more than expected.
Why should I care?
For the stock: Investors were disappointed on Monday – but the stock has had a good year.
HSBC’s stock fell more than 1% on Monday as the higher-than-expected costs seemingly weighed on investors’ minds. But the stock is up almost 20% over the past year. Investors have been buoyed by previous announcements that HSBC will return more money to investors in the form of dividends and buying their own stock. One of the big questions moving forward is whether it can generate enough revenue growth, in China and elsewhere, to cover its costs and keep paying a relatively high dividend over the long term.
The bigger picture: HSBC is trying to upgrade its banking apps.
The bank’s unexpectedly high costs included investment in digital capabilities that are likely to become more important as time goes on. In a world where customers increasingly interact with their banks online, HSBC has been seen as a laggard by some research analysts when it comes to digital. The investment HSBC is making in its online capabilities may well be a necessary cost in order for it to maintain its appeal to bread-and-butter retail customers over the long run.