HSBC’s quarterly profit plunged 80 per cent as it took a $3 billion (€2.8 billion) charge on the value of its stake in a Chinese bank and a further writedown on commercial real estate, underlining how a slowdown in the country’s economy continues to hit international lenders.
Profits for the final three months of 2023 fell to $1 billion (€925 million) from $5 billion (€4.6 billion) in the same period a year earlier, HSBC said on Wednesday. While its pretax profits for the full year rose 78 per cent to $30 billion (€27,7 billion), driven by higher interest rates, the disappointing end to the year caused it to miss analysts’ expectations of $34 billion (€31.5 billion).
HSBC’s shares dropped almost 8 per cent in early trading in London, wiping out the gains from the past 12 months.
HSBC chief executive Noel Quinn blamed the Bank of Communications impairment on a “technical accounting adjustment” and said that it “does not affect our view on China at all; we’re a committed investor into China ... and remain confident on the economy”, which the bank forecasts will expand by 4.9 per cent in 2024.
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The UK-based lender earns most of its profits in Asia and holds a 19 per cent stake in Bank of Communications. In October, HSBC’s rival Standard Chartered took a $700 million impairment charge on its investment in China Bohai Bank, another mainland lender. Standard Chartered reports its full-year earnings on Friday.
Citigroup analyst Andrew Coombs described the fourth quarter as “messy” and “complicated by a series of one-offs”. The sprawling global lender also reported a £500 million (€584 million) charge for hyperinflation in Argentina, a $2 billion (€1.9 billion) writedown on the sale of its loss-making French retail network and $300 million (€278 million) of impairments related to unsecured lending in Mexico.
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The bank also forecast lower net interest income for 2024 than analysts had estimated, reflecting signals from the US Federal Reserve and the Bank of England that they may cut interest rates this year.
The results underscore how banks are taking a hit on their China exposure as growth slows in the world’s second-biggest economy. Of particular concern for HSBC, one of the world’s largest trade financiers, is data that shows China reported its smallest annual foreign direct investment since the 1990s last year.
HSBC added $200 million (€185 million) to its reserves to cover expected credit losses from commercial property in mainland China, raising the total to $1 billion (€925 million) for the whole of 2023.
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Mr Quinn said in October that he believed the worst was over for China’s real estate sector and that government policies to stimulate demand were having an effect. “I still believe that”, he said on Wednesday. “What I saw was a progressive and gradual recovery in that market”, though he added it would take time to “work through challenges”.
The bank said Mr Quinn’s total pay package had jumped from £5.6 million (€6.5 million) to £10.6 million (12.4 million) because of payouts from a long-term incentive plan.
The size of the award reflected Mr Quinn’s “leadership in reshaping the [bank] to deliver more sustainable returns to shareholders”, HSBC said, though it noted that it took Mr Quinn’s pay to 169 times that of the average UK HSBC employee, up from 95 times last year. The bank’s total bonus pool rose 12 per cent to $3.8 billion (€3.5 billion).
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Rival Barclays on Tuesday cut its bonus pool and the pay package of its chief executive CS Venkatakrishnan after a tough year for its investment bank. By contrast, Wall Street banks Goldman Sachs, JPMorgan Chase and Morgan Stanley have all awarded their chief executives with pay rises.
HSBC announced a further share buyback worth up to $2 billion (€1.9 billion) and a 31 cents a share dividend for the quarter. Shareholder distributions, including the highest full-year dividend since 2008, of 61 cents per share, reflected “four years of hard work and the strength of our balance sheet in a higher interest rate environment”, Quinn said.
Georges Elhedery, the bank’s chief financial officer, said that if conditions were right, “we remain intent to have a rolling series of share buy-backs”.
The bank’s net interest margin, a crucial measure of lending profitability, rose to 1.66 per cent for the full year, as the bank benefited from higher interest rates. HSBC is one of the world’s largest deposit-taking institutions, making it particularly sensitive to interest rates.
The bank said it expected net interest income of at least $41 billion (€37.9 billion) for 2024, up from $36 billion (€33.3 billion) in 2023.
Its return on tangible equity, a measure of profitability, was 14.6 per cent for the year, up from 10 per cent a year earlier but missing analysts’ estimates of 17 per cent. – Copyright The Financial Times Limited 2024
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