- 2024 results meet forecasts
- Dividend and buyback in line
- 2025 outlook implies upgrades
Despite rallying overnight in Hong Kong, shares in Asia-focused banking giant HSBC (HSBA) were slightly lower at the London open as investors took on board in-line annual results, a hike in the dividend and another buyback, but seemed to miss the increase in 2025 guidance.
Having gained 14% since the start of 2025 and more than 50% over the past year, the shares had clearly priced in plenty of good news, and an hour into trading had drifted 9p or 1% lower to 889p.
NO SURPRISES
For the year to December 2024, HSBC posted a pre-tax profit of $32.3 billion, less than 2% ahead of the consensus of $31.7 billion, and EPS (earnings per share) of $1.25 against an average estimate of $1.23 as compiled by the bank.
Profit was boosted by $2 billion thanks to ‘notable items’ including a $4.8 billion gain on the sale of the Canadian banking business, the sale of the Argentine business, the recycling of foreign currency reserve losses and other reserves, and a lack of impairments on the stake in Bank of Communications (601328:SHA), which damaged 2023’s earnings.
In terms of the underlying business, revenue was stable at $65.9 billion with growth coming from wealth and private banking as well as equities and securities financing, while banking net interest income was slightly lower at $43.7 billion as the bank deployed more of its surplus capital to the trading book and away from lending.
As a result, the net interest margin decreased from 1.66% to 1.56% although expected credit losses were stable at $3.4 billion despite write-offs in Chinese commercial real estate and ‘a charge related to a single CMB (commercial banking) customer in the UK’.
Shareholders were, however, treated to a final dividend of $0.36 per share, taking the full-year payout to $0.87 against the consensus of $0.85, and another $2 billion share buyback.
BETTER OUTLOOK
Somewhat surprisingly, London investors seemed to overlook the bank’s outlook, where it said it would target banking net interest income of $42 billion this year, compared with consensus forecasts of less than $41 billion, and a mid-teens percent ROTE (return on tangible equity) from 2025 to 2027 against forecasts of 13.5% to 14%.
As Jefferies’ financials specialist Joseph Dickerson points out, with a mid-teens ROTE, better banking net interest income and cost savings, analysts will likely have to revise up their 2025 pre-tax profit forecasts by at least 4% if not more.
Moreover, if investors were hoping for a bigger buyback, that was unlikely given the targeted completion date of the release of the first-quarter results in three months’ time.
