HSBC Holdings reported a record annual profit on Wednesday (Feb 21), although it missed estimates because of a US$3 billion charge on its stake in a Chinese bank amid mounting bad loans in the world’s second-largest economy.
Shares in the British lender slid 6 per cent in early London trade against a flat FTSE index, also hurt by higher operating costs and despite the announcement of a fresh US$2 billion share buyback.
Pretax profit for 2023 came in at US$30.3 billion, up 78 per cent from a year earlier, but fell short of a consensus estimate of US$34.1 billion.
China’s deepening real-estate crisis has hobbled its economy, and begun hurting global banks with exposure to it.
Taking a US$3 billion impairment on its stake in China’s Bank of Communications (BoCom), HSBC has had the largest writedown on a Chinese bank among foreign peers.
The writedown followed a review of its likely future cash flows and outlook for loan growth and interest margins, HSBC said.
Chief executive Noel Quinn said, however, that he believed that valuations in mainland China’s commercial real estate market had bottomed. He added that he was seeing a “progressive and gradual recovery”, but that it would “take a few years for the market to work its way through the current challenges”.
Matt Britzman, equity analyst at Hargreaves Lansdown, said that mainland China remained a question mark for HSBC, and that its outlook looked somewhat worse than expected.
He wrote in a note to clients that 2023 was “a strong year for HSBC, but earnings momentum looks to be coming to an end, and things are set to get tougher from here”.
Cautious outlook, rising costs
Europe’s biggest lender said it remained cautious about the loan growth outlook in the first half of 2024, against slowing economic growth in many economies where inflation was persistent.
HSBC’s costs grew 6 per cent in 2023, more than it had forecast, due to the impact of higher-than-expected bank levies in the US and Britain. It also said costs would grow a further 5 per cent in 2024, as it grappled with inflation while investing in its businesses.
In 2023, the bank reported a 14.6 per cent return on tangible equity (ROTE), a key performance target, though it fell behind an estimated 17 per cent. It said it continues to target ROTE in the mid-teens for 2024.
HSBC’s wealth business provided a bright spot for the bank, with revenues up 8 per cent to US$7.5 billion, partly boosted by the acquisition of Citigroup’s wealth business in China last year.
The wealth unit – which HSBC has been trying to grow, particularly in Asia – also attracted net new invested assets of US$84 billion, up from US$80 billion in 2022.
HSBC said its bonus pool rose to US$3.8 billion from US$3.4 billion in the prior year, reflecting improved performance, and that it would also launch a new variable pay scheme for junior and middle-management staff.
Notably, Quinn’s total pay doubled in 2023 to US$10.6 million from US$5.6 million the year before, as long-term incentives from his appointment in 2020 began to vest, boosting his variable pay.
The London-headquartered bank announced a fourth interim dividend of US$0.31 per share, resulting in a total for 2023 of US$0.61 per share.
It also said it would consider a special dividend of US$0.21 per share in the first half of 2024, once the sale of its Canada business was complete. REUTERS
