LONDON — There are things to love and loathe about most companies. Today, I’m going to tell you about three things to loathe about HSBC Holdings plc (LON:HSBA).
I’ll also be asking whether these negative factors make this FTSE 100 banking giant a poor investment today.
Of all the banking scandals of recent years, the HSBC money-laundering affair — which led to a record $1.9 billion fine for the bank — is perhaps the most odious. A U.S. Senate investigation alleged that a “pervasively polluted” culture at HSBC Holdings plc (LON:HSBA) allowed the bank to act as a financier and conduit for organized crime, drugs cartels, and rogue terror regimes.
The U.S. probe found that not only were HSBC Holdings plc (LON:HSBA)’s anti-money laundering controls woefully inadequate, but also that the bank ignored red flags, deliberately circumvented money-transfer regulations, and actively concealed billions of dollars of suspicious transactions to Iran over many years.
The rewards of failure
The record money-laundering fine was one factor during 2012 that led to HSBC’s performance against half the measures in the company’s long-term executive incentive scheme being at a level that merited no payout.
Despite these failures — which included missing targets for return on equity and cost efficiencies — HSBC rewarded chief executive Stuart Gulliver with an $11 million remuneration package, part of which was an annual bonus worth almost $3 million. The company also paid 78 of its London staff over 1 million pounds each.
Shareholder lobby group PIRC has attacked HSBC Holdings plc (LON:HSBA)’s pay policies, and has called on investors to vote against the company’s remuneration report at this Friday’s AGM.
I can’t tell you quite why, but I’ve never been impressed by HSBC’s TV advertising. The latest “Lemonade” campaign hasn’t changed my opinion.
For one thing, somebody should tell HSBC Holdings plc (LON:HSBA) that there’s a fine line between “endearing child” and “smug brat.” For another, the dad in the ad looks as shifty as they come to me, and I can’t help thinking his daughter’s lemonade stall is just a front for shady currency transfers: “I take Iranian Rial.”
A poor investment?
Fair enough, my pet hate of the TV ads doesn’t amount to much — we do try to amuse as well as educate and enrich here at the Motley Fool! — but do HSBC’s money-laundering deceits and pay policies make the company a poor investment?
Banks’ reputations during recent years could hardly be at a lower ebb, but with regulators and shareholders on their cases, I think we’ll see fewer blunders and less extravagant bonuses for a good number of years to come.
If banks start to look after their shareholders’ interests better, dividends should be an important part of the recipe. When it comes to dividends, HSBC Holdings plc (LON:HSBA) has a headstart on its rivals. The stock offers a forecast 4.4% income at the current share price of 759 pence, and analysts expect strong growth of the dividend.
The article 3 Things to Loathe About HSBC Holdings originally appeared on Fool.com and is written by G.A. Chester.
G.A. Chester does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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