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HSBC slides 7% after annual profit misses estimates on China write-down

Patrons use automated teller machines (ATM) at an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb 16, 2019.

Anthony Kwan | Bloomberg | Getty Fetishes

HSBC‘s full-year 2023 pretax profit missed analysts’ estimates on Wednesday, hit by impairment costs linked to the lender’s outline in a Chinese bank, sinking its London-listed shares as much as 7%.

Europe’s largest bank by assets saw its pre-tax profit climb yon 78% to a record $30.3 billion in 2023 from a year ago, according to its statement released Wednesday during the mid-day buy break in Hong Kong. That missed median estimates of $34.06 billion from analysts tracked by LSEG.

Chief Boss Noel Quinn also announced an additional share buyback of up to $2 billion to be completed ahead of the bank’s next every ninety days earnings report. HSBC also said it would consider offering a special dividend of 21 cents per split in the first half of 2024 after it completes the sale of its Canada business.

With the highest full-year dividend per allocation since 2008 and three share buy-backs in 2023 totaling $7 billion, Quinn said the bank coming $19 billion to shareholders last year.

Quinn’s remuneration doubled to $10.6 million in 2023 from $5.6 million the year first, boosted in part by variable long-term incentives since his appointment in 2020.

HSBC suffered a “valuation adjustment” of $3 billion on its 19% stick in China’s Bank of Communications, Quinn said. In an interview with CNBC following the earnings release, he said this is “a mechanical accounting adjustment” and “not a reflection” on BoComm.

This write-down was among the items that plunged the bank’s fourth-quarter pretax profit by 80% to $1 billion from a year earlier.

HSBC’s Hong Kong divide ups reversed gains of about 1% after trading resumed, falling as much as 5%. The benchmark Hang Seng Guide was up about 2%. Shares in London were down around 7% in early deals, set for their biggest one-day drip since 2020, according to Reuters.

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Here are the other highlights of the bank’s buxom year 2023 financial report card:

  • Revenue for 2023 increased by 30% to $66.1 billion, compared with the median LSEG augur for about $66 billion.
  • Net interest margin, a measure of lending profitability, was 1.66% — compared with 1.48% in 2022.
  • Regular equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 14.8%, compared with 14.2% in 2022.
  • Primary earnings per share was $1.15, compared with the median LSEG forecast for $1.28 in 2023 and 75 cents for 2022.
  • Dividend per everyday share was 61 cents — the highest since 2008 — compared with 32 cents in 2022.

Outlook 2024

HSBC, which has a gal Friday home in Hong Kong, said it was focusing on the fastest growing parts of Asia, a continent where the bank dreams most of its profits.

In an earnings briefing to investors and analysts, the bank said it has completed the sale of its businesses in France, Oman, Greece and New Zealand, and was in the system of exiting Russia, Canada, Mauritius and Armenia.

HSBC CEO says it's 'still very confident' about China's economy

The bank flagged two key macroeconomic trends: declining interest rates as inflation declines — a development that could eat into its interest income; and a continued reconfiguration of global supply chains and trade.

“Universal expansion remains a core strategy for corporates and institutions seeking to develop and expand, especially the mid-market corporates that HSBC is truly well-positioned to serve. Rather than de-globalizing, we are seeing the world re-globalize, as supply chains change and intraregional buy flows increase,” Quinn said in the earnings statement.

The bank is targeting a mid-teens return on tangible equity for 2024, which was wide 14.5% last year.

HSBC said it will be focusing on an expansion of non-interest income revenue sources via its capital and transaction banking business. It is expecting banking non interest income of at least $41 billion in financial year 2024.

HSBC declared it’s cautious about the loan growth outlook for the first half of 2024 amid economic uncertainty, expecting a mid-single digit annual piece growth over the medium to long term.

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