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Third quarter results imply lofty capital surplus
Thursday 10 Nov 2016 Author: Tom Sieber

Amid fears it would deliver soft third quarter numbers, HSBC (HSBA) is flying high after beating consensus forecasts with a 7% increase in underlying pre-tax profit to $5.6bn.

Investors can have greater confidence in the current prospective yield of 6.5% as the company reported capital ratios which were, in the words of UBS, ‘substantially ahead of expectations’.

There is also scope for further share buybacks following the conclusion of the current $2.5bn programme.

The company’s core tier one capital ratio – a measure of how much cash the company has as a buffer against a financial shock – has improved to 13.9%.

Shore Capital analyst Gary Greenwood reckons this leaves the company with excess capital of $8.1bn down to the upper end of management’s targeted range of 12% to 13%.

Despite this cash surplus Greenwood remains a seller. ‘With the shares currently trading around tangible book value but with the forecast return on tangible equity set to remain stuck below the cost of equity (c10%) for the foreseeable future, we re-iterate our negative stance regardless of whether the dividend is ultimately maintained or cut,’ he says.

Investors shouldn’t get swept away by the headline dividend yield. It is always important to remember that banks are inherently complex companies and certainly not risk-free investments.


The stock has already rallied from an April low of
418p but even at 615p the yield looks attractive and, for now, secure. (TS)

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