1st Aug 2023 11:00
(Alliance News) - HSBC Holdings PLC on Tuesday rounded off the UK bank earnings season on a positive note, but while its geographical breadth is currently a boon, it leaves the lender exposed to a wider variety of risks going forward, one observer noted.
Asia-focused, London-based HSBC said pretax profit multiplied to USD21.66 billion from USD8.78 billion a year before. Thanks to the higher interest rate environment globally, net interest income rose by 36% to USD18.26 billion from USD13.39 billion. This helped to bring overall revenue up by 50% to USD36.88 billion from USD24.55 billion.
The bank announced a second interim dividend of USD0.10 per share, as well as its second share buyback of the year for up to USD2 billion.
CEO Quinn noted "substantial further distribution capacity" is still expected ahead.
"HSBC has brought down the curtain on an otherwise mildly disappointing banks' reporting season in some style, displaying both growth and financial strength through its sheer scale," said interactive investor's Richard Hunter.
"The release is a tour de force which has been achieved through a combination of higher income, lower costs, the reshaping of the business, all while driving growth."
As part of its transformation process, HSBC has revised the terms of its exit from the French retail banking business, and is winding down its Canadian operations. It completed the exit from Greece, and is planning a withdrawal from Russia. It is also revamping its presence in Oman, ii's Hunter noted.
"As such, the group is moving away from the transformation to concentrate on value creation. It has already undertaken any number of initiatives, such as the launch of a global private banking business in India and is looking to grow its fee income further, particularly in the potentially rewarding area of its wealth business in Asia generally," Hunter said.
The bank's common equity tier 1 capital ratio was 14.7% at the end of June, which Hunter dubbed "cushy", up from 14.2% at the end of the fourth quarter of 2022.
Looking ahead, HSBC raised its guidance for return on tangible equity for 2023 and 2024, now expecting to reach the mid-teens, excluding the effects of material acquisitions and disposals. Back in May, it had guided for "at least" 12%.
In the first half, HSBC achieved annualised RoTE of 18.5%, excluding material acquisitions and disposals, compared to 10.6% the prior year. Meanwhile, net interest margin improved to 1.7% in the first half from 1.2% a year before.
"Of course, there remain hurdles with which the bank has to contend, such as an inflationary environment which remains high even though there are some signs of weakening," ii's Hunter said.
"The commercial real estate sector in mainland China is another potential thorn in the side, while weaker customer demand for wholesale lending has been seen, especially in Hong Kong and Europe, although there are currently few signs of stress in the bank’s UK mortgage book, for example."
The bank has consequently chosen "not to take any chances", upping its budget for a credit impairment to USD1.3 billion from USD1.1 billion.
Shares in HSBC were up 1.1% to 653.40 pence each in London on Tuesday. The stock is up by 20% over the past 12 months.
"A rise of [20%] over the last year compares with a gain of [3.2%] for the wider FTSE 100, and there is little to suggest that the market consensus of the shares as a buy will be threatened in any way following these numbers," ii's Hunter added.
By Elizabeth Winter, Alliance News senior markets reporter
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