The result is just below the average expectations of the analysts.
(Photo: Reuters)
London Europe’s largest bank is back on course for growth. HSBC more than doubled its pre-tax profit to $18.9 billion last year. However, this was slightly below analysts’ expectations, which is why the shares initially lost three percent in trading in Hong Kong on Tuesday.
The jump in profits was mainly due to the reversal of provisions. In the first Corona year, the bank had set aside $ 8.8 billion for possible loan defaults. This reserve has since been reduced to $600 million.
Sales are also growing again. For the year as a whole, there was still a minus of 3.2 percent, but in the fourth quarter sales rose by two percent to twelve billion dollars. This was mainly due to the rising interest rates. Since further rate hikes are expected from the central banks, the bank expects further tailwinds.
“We’re going into 2022 with good momentum,” said HSBC CEO Noel Quinn. The prospects have also improved significantly. “After enduring the burden of low interest rates for some time, we think we’ve turned the corner,” he said. At the same time, however, he warned of risks from the ongoing pandemic and inflation.
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In the key market of China in particular, the pandemic is depressing growth because the government is pursuing a no-Covid strategy. The bank management is also concerned about the turbulence in the Chinese real estate sector: as a precaution, it set aside 450 million dollars for possible loan defaults.
HSBC continues to focus on Asia
HSBC boss Quinn has been pushing the bank’s Asia strategy since 2020. A total of one hundred billion dollars in capital are to be relocated to the growth markets. 35,000 jobs will be cut, mainly in Europe and the USA.
The handling of the branch business in the USA has just been completed, and the sale of 244 French branches is ongoing. The bank also announced further job cuts in Switzerland last week. The mood among the European subsidiaries is correspondingly bad.
However, Quinn feels that he is on the right track with the implementation of the strategy. In the medium term he wants to use 50 percent of the capital in Asia. 35 percent are to be accounted for by business with wealthy private customers. Currently, 42 percent are employed in Asia and 27 percent in so-called “wealth and private banking”.
In order to grow in these areas, HSBC recently bought the insurer Axa Singapore and the wealth manager L&T Investment Management in India. However, Quinn anticipates a weaker showing in wealth management in Asia in the first quarter due to ongoing Covid uncertainty.
In the traditional lending business with corporate customers, the head of the bank is aiming for growth in the single-digit to low double-digit range this year. With an increase in sales of eight percent, this area was the growth driver last year. Investment banking, from which HSBC recently withdrew somewhat, grew at a below-average rate of one percent.
Return on equity rose to a respectable 8.3 percent in the fourth quarter. The target of more than ten percent should now be reached as early as 2023 – a year earlier than previously planned.
Quinn announced a dividend of $0.25 per share. He also plans to repurchase an additional $1 billion of shares once the ongoing $2 billion share repurchase is complete.
More: Swiss financial regulator Finma is examining revelations at Credit Suisse.