Shares in the bank fell almost by three per cent; the market appeared perplexed about John Flint's unexpected departure.

(An earlier version of this article appeared on WealthBriefing, sister publication to this one, yesterday. The share price has been updated.)

Adjusted pre-tax profit at the private banking arm of HSBC rose to $196 million in the six months to the end of June this year from $187 million a year ago, while the overall banking group announced that chief executive John Flint is stepping down by mutual agreement after three decades at the bank. The bank also intends to shed jobs amid what it sees as a deteriorating global economic outlook.

Net operating private banking income in H1 2019 stood at $905 million, down a touch from $911 million a year earlier. 

The adjusted cost/efficiency ratio was 76.7 per cent, narrowing from 79.8 per cent, HSBC said in a statement yesterday.

Shares in the Hong Kong/UK-listed banking group closed down almost 3.0 per cent in London trade, suggesting investors were rattled by the surprise departure of the CEO, even if overall results appeared robust. Across the banking group as a whole, HSBC said that it logged a 15.8 per cent year-on-on-year reported pre-tax profit gain, at $12.4 billion. That figure includes $828 million dilution gain recognised on the completion of the merger of its associate The Saudi British Bank with Alawwal bank in Saudi Arabia. It also included a provision of $615 million regarding the mis-selling of payment protection insurance, and $248 million of severance costs arising from cost cutting across business lines. Adjusted profit before tax was up by 6.8 per cent rising to $12.5 billion.

The bank said geopolitical issues could impact a number of its major markets but it maintained its key 11 per cent target for return on tangible equity by 2020. The bank also announced a share buyback of up to $1 billion. Reported revenue rose by 7.6 per cent and adjusted revenue rose by 8.0 per cent.

HSBC logged earnings per share of $0.42.

The group’s common equity tier 1 ratio – a standard international measure of a bank’s financial strength – rose by 30 basis points from 31 December 2018 to 14.3 per cent.

“This morning’s figures from the banking giant have been overshadowed by the news that CEO John Flint is to step down with immediate effect. The move comes as quite a surprise as Flint has been in the role for less than 18 months and no reason was given,” Ian Forrest, investment research analyst, The Share Centre, said in a note.

“When a CEO leaves suddenly with no explanation it is always unsettling for investors, especially in the case of a major global company. There will be a lot of questions to come but the market has taken the news in its stride this morning with the shares recovering quickly from an initial drop. He may not be alone in leaving as there were also reports the bank is considering cutting thousands of more senior roles as it faces a worsening global outlook. It remains a significant dividend payer and offers a decent 6.4% yield so we continue to suggest the shares as a medium risk ‘buy’ for an income geared portfolio, although in the current climate we would favour a drip feed approach.”

UK stockbrokerage Killik said: "We see HSBC as an attractive global bank, given its increasing focus on Asia, which is now over 50 per cent of group revenue, and its strong global network for multinational banking. However, with the stock currently trading at 1.1 times consensus 2019 price-to-book and a 6.4 per cent dividend yield, we see the stock as fully-valued relative to Asian peers and over-valued relative to UK peers."

Job cuts
An executive said that as many as 2 per cent of the banking group’s 237,685 employees could lose their jobs. Such a move, while not as severe as the planned job cuts announced by Deutsche Bank a few days ago, show how cost-cutting remains a focus for lenders.

The Wall Street Journal quoted finance director Ewen Stevenson saying in an interview that the job cuts, which will be targetted at senior roles, would shave up to 4 per cent off HSBC’s wage costs and would come from a mix of layoffs and attrition as people leave for other jobs. His comments did not appear to specify private banking. 

The group said severance costs this year would be $650 million to $700 million.

Our (former) man Flint
Announcing that John Flint was stepping down after almost 30 years at the bank, Mark Tucker, HSBC, said: "I would like to thank John for his personal commitment, dedication and the significant contribution that he has made over his long career at the bank. Today's positive interim results particularly reflect John's achievements as group chief executive.

"HSBC is in a strong position to deliver on its strategy. In the increasingly complex and challenging global environment in which the bank operates, the board believes a change is needed to meet the challenges that we face and to capture the very significant opportunities before us."

The bank has started to search for a new CEO and will consider external and internal candidates. Noel Quinn takes over as interim CEO subject to regulatory approval. Quinn is CEO, global commercial banking, a position he has held since 2015. Another long-serving HSBC figure, he has been with the group for 32 years.