Okay. I admit it. We’ve been hard on HSBC (LSE:HSBA) this past 12 months. In fact, I gave them a pretty strong poke in the eye just two weeks ago today on 23 April, when I berated them for their treatment of the “little people.” And I was a wee bit sarcastic about them about their recovery plans when their share price had plunged to 610 on 05 November last year, dragging the Footsie down with it. But, I do recall saying as well at that time that “HSBC is equipped, perhaps more than most banks, to handle a crisis of this proportion and still conduct business as usual.”
I’m not quite ready to apologize to any of the major banks quite yet for my comments about the grief that they have caused the entire country with their misdeeds, but I do rise to give HSBC a standing ovation for the performance they turned in for Q1 of 2013 this morning. The primary concern of their business is, after all, making money, and they are very good at it, even when they do it legally.
After the bank announced a per-tax profit of $8.4 billion, Stuart Gulliver, the bank’s illustrious CEO, told reporters that “We’re moving into calmer waters, but there are still challenges ahead.” Oh, I almost forgot to mention: The $8.4 billion is almost double the $4.3 billion the bank generated in Q1 2012! The HSBC share price rose sharply early this morning, almost spot-on vertically, in the 10 minutes following 9:12 am to 731.00. It has settled in comfortably at 733.00 after opening at 711.30, a 2.68% increase.
Other major news sources have been saying this morning that HSBC “moved faster and more aggressively than many of its peers to cut costs after the crisis.” That is particularly evident when comparing the huge leap in pre-tax profits versus the more modest 5% increase in revenue to $17.6 billion. The enormous increase in profit is more a direct result of the implementation of Gulliver’s intense cost reduction campaign. Operating costs decreased by $1.1 billion during the quarter. HSBC’s Finance Director, Iain MacKay told reporters that “You can expect us to continue to focus on our cost base.”
HSBC has been aggressively selling off non-core assets and clearing redundancies in the work force as primary means of reducing costs. It has either sold or is in the process of selling units in China, the U.S. and Latin America for more than $14 billion. Some of the jobs eliminated are a result of the sell-off of the aforementioned units. That accounts for some 14,000 employee cuts. Some 26,000 positions were outright eliminated and, as we noted in our 23 April story, more cuts are on the way with 1,149 expected in the UK.
It’s hard to argue with success. As Mr. Gulliver said in his report, ” These results demonstrate our progress in implementing the strategy we set out in May 2011. While continuing uncertainty in the global economy has created a relatively muted environment for revenue growth, we have increased revenue in key areas. We have achieved further progress on the journey we started in 2011 to make HSBC easier to manage and control. The implementation of global standards will help ensure that we meet the commitments we made to the US and UK authorities as part of the settlement agreements reached at the end of last year. We have strengthened our capital position and remain one of the best-capitalised banks in the world. Our strategic direction remains unchanged.”
Gulliver is a man with a plan. For the bank and its investors it’s a good plan. And it’s working. Huzzah!