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HSBC Boss Will Be Hard to Replace

The Week: The sudden departure of HSBC's John Flint has raised a number of difficult questions, says Morningstar columnist Rodney Hobson, who has been topping up his finance stocks

Rodney Hobson 9 August, 2019 | 9:29AM

HSBC branch

Great first half results from HSBC (HSBA). Shame the effect was spoilt by the grossly inadequate announcement of the departure of the chief executive after only 18 months.

Investors Deserve Better

So sudden is this decision that commercial bank head Noel Quinn has had to step up immediately. Shareholders (including me) deserve better than to have to find out what is going on from the following morning’s newspapers.

It seems the rest of the board has decided that John Flint is not up to the job of improving the bank’s performance in a tougher outlook for markets in the UK and Asia, where HSBC does most of its business. He is apparently not cutting costs and generating extra revenue fast enough.

But you wouldn’t think that from all the usual stuff in the announcement. Chairman Mark Tucker said: “Today's positive interim results particularly reflect John's achievements.” So why, one wonders, was he being forced out. Flint, for his part, is “grateful to my wonderful colleagues”. Does that include the ones who dumped him?

HSBC pre-tax profits rose 15.8% to $12.4 billion thanks in part to strong momentum in revenue from retail banking and wealth management plus growth in all major products and all regions in commercial banking. Despite the uncertain outlook, revenue in Asia increased 7% compared with the previous first half. The only disappointment is that the bank prefers to spend $1 billion on buying back shares rather than raising the dividend.

The shares dropped from 666p to 626p in two days either side of the figures. They are now uncomfortably close to the 12 month low of 606p but I don’t think they will test the floor. I shall continue to hold. I just wish that the bank was still in the hands of the solid, dependable chief executive who will be hard to replace.

L&G Unloved

What is it about Legal & General (LGEN) that cannot find favour among investors? Is it the solid and boring image that I love in companies but which fails to spark the imagination of more adventurous souls?

There has been some concern about where L&G has invested the cash that pays its clients’ pensions and annuities. That is understandable given the furore over Neil Woodford’s suspended fund that was too heavily invested in illiquid assets. L&G has very sensibly given figures showing that it is not excessively committed to UK corporate bonds and junk bonds.

The insurance giant reported operating profit up 11% to more than £1 billion in the first half of this year with record annuity sales of £7 billion. The balance sheet is strong and the second half has started well.

The interim dividend rises from 4.6p to 4.93p. The 7% increase is similar to last year and assuming a similar lift in the total payout to a well covered 18.66p, the potential yield is over 7% at the current share price around 240p.

I can’t think of another such reliable and profitable company offering such a high return. I therefore snapped up a batch of shares on the morning of the results announcement. The shares have still not responded but they will. They are down from a peak of 290p in April for no good reason.

Topping Up on Lloyds 

I wrote last week that I was tempted to add to my already overweight holding in Lloyds Banking Group (LLOY) after another slide in the share price following perfectly acceptable if unexciting results. This week Lloyds slipped back below 50p and the temptation became too strong: I have made a modest addition to my holding at what I consider to be a bargain price. At 49p, the prospective yield for this year is 6.9%, which allows for an awful lot of bad news.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
HSBC Holdings PLC601.60 GBX-0.79
Legal & General Group PLC275.40 GBX0.15
Lloyds Banking Group PLC60.19 GBX-1.26

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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