Analyst says HSBC 'overstated accounts' and disputes ROE targets

16th Jan 2014 14:19

A Hong Kong research firm has claimed HSBC has overstated subsidiary assets by as much as 92.bn dollars and therefore needs to raise capital, and either cut or suspend its dividend. In a somewhat incredulous and cynical initiation of coverage, ending unsurprisingly with a 'sell' recommendation, research firm Forensic Asia also poured scorn on the FTSE 100 group's core targets for return on investment (ROE) and accused it of maintaining a charade."HSBC Holdings has overstated assets at the major subsidiary level to the tune of $63.6bn-$92.3bn, by our calculation, amounting to between five and seven years of results," analyst Tom Monaco said, predicting a fundraising of "$58bn-$111bn... representing 32-61% of current stated equity".He added: "It is a wonder how group management can say to shareholders with a straight face that HSBC will achieve perennial operating ROEs of 12-15%", setting out five "problems" with group CEO Stuart Gulliver's target. These included: a 39% decline in the Chinese bottom line in dollar terms due to numerous franchise disposals and accounting changes, together with a failure to take advantage of QE judiciously, allowing many of its legacy developed market problems to linger and newly created ones in emerging markets to build up.Furthermore, he wrote other factors hindering HSBC achieving its ROE target would include "up to $10bn of additional legal and regulatory penalties; and high reliance (52% of pre-tax income) on low-quality and volatile trading seems unsustainable".Forensic Asia is a Hong Kong firm led by Head of Research Andrew Haskins, a former analyst at Mitubishi and Nomura.OH