Macquarie Analyst: The 'Key Positive' For HSBC Remains The Dividend

Shares of HSBC Holdings plc (ADR)HSBC plunged heavily in pre-market trading today as the company came out with disappointing fiscal year 14’ results. The company reported earnings of $0.69 per share, 18 percent below what it reported for the previous fiscal year.

Ed Firth, banking analyst at Macquarie, was on CNBC Monday to weigh in on the results and discuss the company’s valuation.

“Yeah, these results suddenly look very disappointing,” Firth said. “We made [about 8 percent light] and I think what’s most disappointing is this doesn’t appear that this is just a one-line item miss, if it was just a trading profit miss or something like that where you can say there’s a clear identifiable problem, but [certainly/suddenly] if I look at my numbers, they missed on pretty much every line except associates.”

Is HSBC Becoming Too Big To Manage?

“Broadly speaking they [ HSBC’ management] take 12 percent of the equity capital that is allocated to European banks, and that’s about 70 percent more than the next biggest stock and it’s not at all clear what investors are getting for having to put that amount of capital into backing behind one management team,” Firth replied.

Isn’t The Valuation Of The Company Pretty Cheap Now?

“Today they have reduced their return on equity targets now down to 10 percent, Firth answered. “Previously they were looking at what 12 to 13 or 12 to 15. So, a 10 percent return for one’s time Book, is that a screaming buy? I mean, it’s not completely obvious that that is a huge discount to where [it/you] might be, I mean if you are looking at the positives, I guess the key positive remains the dividend. Now, the dividend today was a little bit light against what we were expecting, but you are still getting a well over a 5 percent yield.”