Healthy stags grow big antlers to demonstrate their ability to accumulate more energy than they need purely to survive. A share buyback by HSBC would have the same function. The bank has big enough capital shock absorbers to satisfy regulators and is likely to have more cash than it fancies investing in expansion. A $3bn stock repurchase in 2014 or 2015 would help it stand out from the herd.
But a 14-pointer attracts interest from trophy hunters. HSBC’s plan carries some political risks.
A bank that returns capital to shareholders over and above vanilla dividends is signalling the cash cannot be lent lucratively. To the City, this means that even with output growth busting along at about 7 per cent a year in China, hot money is depressing returns from emerging markets. “Repositioning is also putting pressure on margins,” says Investec’s Ian Gordon, referring to a risk reduction shift by HSBC.
However, to the parochially-minded – unaccountably, MPs spring to mind – bank capital allocation is baldly binary. Money that goes to staff or stockholders has been snatched from the outstretched hand of the small businessman, they figure. Bank lending to UK enterprise slid £150m to £1.47bn in the fourth quarter of 2012.
Stuart Gulliver, the monarch of the HSBC glen, can probably dodge any bullets. During the crisis, HSBC benefited from broad state support for the sector rather than a tailored bailout. The equilibrium of a buyback with take-up of dilutive scrip dividends by Asian investors would provide a second line of defence.
Still, it is just as well the Ian Hislop lookalike has the media skills to weather an appearance on the Today programme a year or so hence.
Cecil B. de Crozier
Film director Cecil B. de Mille said creativity was a drug he could not live without. Adam Crozier, chief executive of ITV, appears to be hooked on the same stimulant. He evidently believes that expanding ITV’s programme-making will free the group from the constraints of the depressed, mature UK advertising market.
A first-quarter trading statement could have done with a feel-good rewrite, though. Sales by ITV Studios fell 5 per cent, reflecting the phasing of production. Ad revenues were strong but the outlook for the year is flatter than the Fens. Analysts predict pre-tax profits growth will decelerate. Numis, for example, forecasts a 7 per cent increase for 2014 against 11 per cent for 2013 and 16 per cent in 2012.
The back story is that Mr Crozier, the irrepressible former boss of the Football Association, has done a storming job in turning round a tired legacy broadcaster. Three years since ITV launched its transformation plan, the shares are up 100 per cent against the FTSE 100 and 87 per cent against media heavyweight BSkyB.
Ad revenues will always weave around UK economic growth. Harder to predict the fortunes of ITV Studios, responsible for one-fifth of underlying earnings in 2012. It supplies shows – such as Downton Abbey and Come Dine With Me – saleable to broadcasters in geographically and technologically exotic places.
In the convergeosphere of TV, telecoms and the web, investment choices are polarised, both for companies and shareholders. Specialise in conduits and future earnings will be visible and squeezed. Cultivate content, and margins should be fatter. Risks will also be steeper.
ITV shares have paused on a forward earnings multiple of 13 times, a shade cheaper than BSkyB. What better moment for investors to decide whether to stick with Mr Crozier for the long haul?
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