- Annual profit surges on higher rates
- Further $2 billion share buyback
- China provision a negative surprise
Shareholders in HSBC (HSBA) will be feeling frustrated after the global bank posted its best-ever annual profit and extended its share buyback yet its stock price slumped on an unexpected non-cash charge for its holding in a Chinese lender.
After trading 3% lower in the Hong Kong session, the shares dropped 5% at the open in London and were trading as much as 7% lower at 595p by mid-morning.
RECORD RESULTS ECLIPSED
On the face of it there was much to like in HSBC’s annual results, with profit before tax leaping by $13.3 billion or almost 80% to a record $30.3 billion.
The bulk of the increase came from underlying revenue growth, which surged 30% or $15.4 billion to $66.1 billion helped by an increase in the net interest margin from 1.42% to 1.66% which generated an extra $5.4 billion of net interest income.
Non-interest income rose by $10 billion thanks to a rise in trading and an increase in fair value income of $6.4 billion mainly in global banking and markets.
Meanwhile, charges for expected loan losses were $100 million lower than the previous year at $3.4 billion, with less than one third attributable to the bank’s exposure to mainland Chinese real estate, and the bank even delivered on operating costs with a 2% or $600 million reduction in group overheads.
Unfortunately, all this good work was undone by an unexpected $3 billion non-cash provision in the fourth quarter for the fall in value of the group’s long-standing 19% stake in its associate Bank of Communications (601328:SHA), China’s fifth-largest bank, which meant net profit missed expectations.
The global lender also wrote off $2 billion for the sale of its loss-making French business, $300 million for unsecured lending in Mexico and an unspecified amount for hyperinflation in Argentina.
LESS ROSY OUTLOOK
For 2024, the bank forecast banking net interest income of ‘at least $41 billion’ against $35.8 billion last year due to the interest rate cycle and ‘customer behaviour and activity levels, which we would also expect to impact our non-interest income’, which was seen as disappointing.
It also said ‘given continued uncertainty in the economic outlook’ it expected credit losses as a percentage of average gross loans to rise to 0.4% from 0.36% last year, which may not sound much but when applied to the bank’s total loan book of nearly $940 billion is a considerable amount even for a bank of its size.
On the plus side, the group almost doubled its full-year dividend with a final payout of 31c per share and announced a further $2 billion buyback with chief financial officer Georges Elhedery saying the board was intent on having ‘a rolling series of buybacks’.
