- Bank announces surge in Q4 earnings
- Warns credit losses to rise to the top end of forecasts
- Special dividend supports shares
Investors in Europe’s largest bank by market value, HSBC (HSBA), were in a more forgiving mood than shareholders in Barclays (BARC) or NatWest Group (NWG) last week after the company announced a sharp surge in earnings and dangled the promise of a special dividend.
Rather than a 7% to 8% drop, HSBC shares posted a small dip of 2% or 13p to 608p at the open before trading 9p or 1.5% higher at 630p by mid-morning.
WHY WERE HSBC PROFITS SO STRONG?
For the fourth quarter of last year, adjusted profit before tax was up 92% to $6.8 billion, above market forecasts, thanks to a 38% increase in adjusted revenue to $15.4 billion, which was also well ahead of most estimates.
Total income was lifted by strong growth in net interest income due to rising interest rates and an increase in revenue from Markets and Securities Services for a change.
Meanwhile, adjust operating costs were up just 2% to $7.8 billion due to ongoing cost control which included setting a smaller bonus pool.
For the full year, adjusted pre-tax profit rose $3.4 billion or 16.5% to $24 billion, while reported earnings fell by $1.4 billion to $17.5 billion after the bank took a $2.4 billion writedown on the sale of its French retail operations.
Significantly, provisions for expected credit losses swung from a release of $900 million in 2021 to a charge of $3.6 billion for 2022 to reflect higher inflation, economic uncertainty and the ongoing problems in the Chinese property market.
As Rob Murphy of Edison points out, the bank also warned it expected credit losses to rise to the top end of its forecast of between 0.3% and 0.4% of total loans this year, while its $16.7 billion net exposure to mainland Chinese real estate ‘remains a risk’ adds Murphy.
SPECIAL DIVIDEND HELPS SUPPORT SHARES
The bank has raised its capital return policy with a 50% payout promised for this year and next year, partly we suspect to mollify its major shareholder Chinese insurer Ping An (2318:HK), which has been critical of the bank’s capital allocation in the past.
It is also paying a quarterly dividend from the beginning of this year and, subject to the sale of its banking business in Canada to RBC (RY:TSE), the board will consider the payment of a special dividend of $0.21 or 17.5p per share ‘as a priority use of the proceeds’ of the deal next year.
