21st Feb 2024 13:19
(Alliance News) - Shares in HSBC Holdings PLC took a hit on Wednesday after the lender booked an unexpected charge on a stake in a Chinese bank in a "messy" final quarter.
Shares in HSBC slumped 7.7% to 594.20 pence in London on Wednesday.
In the fourth quarter ending December, the Asia-focused bank said net operating income fell 11% to USD13.02 billion from USD14.57 billion a year before, while profit dropped 81% to USD977 million from USD5.05 billion.
The figures included an impairment charge of USD3.0 billion relating to the investment in its associate BoCom, and a USD2 billion charge relating to the sale of its retail banking operations in France.
The quarterly performance was further distorted by the USD0.5 billion impact of hyperinflationary accounting in Argentina, HSBC said.
Matt Britzman, equity analyst, Hargreaves Lansdown said: "If there was an award for simple and clean results then HSBC would get the booby prize", noting there was a lot "to unpack".
Analysts at Jefferies explained the provision in China was unexpected, as was the Argentinian accounting impact. However, the charge in France was already factored into consensus expectations.
Neil Shah, executive director at Edison Group said the results paint a "stark picture" of the challenges facing global financial institutions amid economic headwinds, "particularly those with significant exposure to the Chinese market".
He noted the write-down in "reflects the broader struggle of China's economy and its impact on lenders with interests in the region".
Jefferies estimated that once these impacts were stripped out 'clean' fourth quarter results showed pre-provision profit 4% ahead of estimates.
This was driven by better revenue, rising 5%, offset by disappointing costs, which were 6% higher than consensus, as well as 8% better credit costs.
Looking ahead, HSBC said it continues to target a return on average tangible equity in the mid-teens for 2024, excluding notable items. It expects banking net interest income of at least USD41 billion. While its outlook for loan growth is "cautious" for the first half of the year, it expects customer lending growth in the mid-single digits over the medium to long term.
Chief Executive Officer Noel Quinn said: "We have a strong platform for growth with the opportunities that exist within our two home markets and across our international wholesale, market-leading transaction banking, and wealth management businesses".
For Jefferies, the maintained "high-level" ROTE guide was welcome, and its "first take" was that the guidance provided means at worst an unchanged 2024 consensus.
Shore Capital's Gary Greenwood said net interest income guidance of at least USD41 billion is higher than the USD36.6 billion currently reflected in consensus.
However, guidance for cost growth of 5% implies a cost base of around USD33.2 billion, which is above the current consensus of USD31.8 billion, he explained.
HSBC said it has approved a fourth interim dividend of USD0.31 per share, bringing the total dividend to USD0.61 per share, almost double that of USD0.32 in 2022. HSBC also said it will begin a share buyback of up to USD2.0 billion, which it expects to complete by the announcement of its first quarter results.
Bank of America expects three more quarterly USD2 billion buybacks in 2024, for a total USD8 billion and then a 2024 dividend stable at USD0.61 per share.
BofA, Jefferies and Shore Capital continue to rate HSBC at 'buy'.
By Jeremy Cutler, Alliance News reporter
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