HSBC May Rise 44% on Cost Cuts, Asset Sales, Investec Says

HSBC Holdings Plc (HSBA)’s shares may rise by at least 44 percent if Chief Executive Officer Stuart Gulliver focuses on markets that generate higher returns, according to an analyst at Investec Securities.

HSBC could climb to about 950 pence a share if Gulliver commits to ensuring all businesses generate a return on equity exceeding 10 percent, Gareth Hunt, a banking analyst at Investec Securities in London, wrote in a note to investors today. The London-based bank needs to cut costs in the U.K., reallocate capital at its U.S. division and sell parts of the business that aren’t profitable enough, he wrote. Gulliver, who took over as CEO in January, will brief analysts on his plan for the bank on May 11.

“At the broadest level, we would like to hear HSBC articulate the view that it interprets universal banking to mean having scale positions in certain global markets (such as trade finance), not that it has a flag in every country,” Hunt wrote.

Banks including Barclays Plc are reviewing their operations as regulators enforce higher capital requirements to prevent another financial crisis. HSBC has already started a 1 billion- pound ($1.66 billion) cost-cutting program at its U.K. unit and may exit some of the least profitable of the 87 markets in which it operates globally, the Financial Times reported today.

About 72 percent of HSBC’s balance sheet produced returns below 10 percent in the second half of last year, according to Investec.

“We have a neutral recommendation on HSBC and will need to be convinced on the speed and timing of any cost-cutting program,” Mike Trippitt, an analyst at Oriel Securities Ltd., wrote in a note to investors today.

HSBC gained 1.2 percent to 659.6 pence a share at the close in London, valuing the bank at 116.8 billion pounds.

To contact the reporters on this story: Gavin Finch at gfinch@bloomberg.net; Jon Menon in London at jmenon1@bloomberg.net;

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net;

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