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HSBC Chairman Admits Big Still Ain’t Beautiful in Banking



These Six Big Banks Are Well Valued – But They're Mostly Less Systemically Important.

Only six of the world’s systemically important banks have share prices that trade above book value, according to HSBC chairman Douglas Flint.

What is amazing is that there is even six that trade at a premium. After all, weighed down by rising regulatory costs, ultra-low interest rates and slowing capital markets – as well as the need the raise more capital – most of these banks have been far from investors’ first portfolio picks.

But when you look at which banks these six are, they are mostly those that seem least worrisome.

The world has 30 big and complicated that they must hold extra capital to make them safer, the so-called globally systemically important banks.

HSBC along with J.P. Morgan Chase & Co. holds the dubious accolade of being the biggest and most complicated of all the world’s banks and so bears the highest capital charge, which, among other things has been weighing on its returns to shareholders.

That’s why Mr. Flint wanted to point out that most of these banks, like HSBC, trade at a discount to the value that could theoretically be realized if you shut them down and sold off all their assets.

But five of the six that trade at a premium to book value are in the bottom-most bucket of systemically risky banks – which confers an extra capital charge of 1% of risk-weighted assets.

Two of these, State Street and Bank of New York Mellon, are fewer banks than custodians – meaning most of their business is just looking after other people’s money. Another one, Nordea, is a fairly simple retail bank that seems to have made the list by being the Nordic region’s biggest bank.


Then there is UBS, the European bank that has been most successful at getting out of investment banking, and Wells Fargo, which is still regarded as much more Main Street than Wall Street.

The sixth bank is J.P. Morgan: it trades at a premium to last year’s reported book value, although unlike the rest it is at a slight discount to the forecasts book value, according to FactSet.

This shows that banks to be given value does not need to be small and simple.

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