HSBC’s shares slide as record profit marred by $3 billion China hit By Reuters

© Reuters. FILE PHOTO: HSBC Bank logo is seen in this illustration taken March 12, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Selena Li and Lawrence White

HONG KONG/LONDON (Reuters) -HSBC Holdings reported record annual profit on Wednesday although it missed estimates due to a hefty $3 billion charge on its stake in a Chinese bank amid mounting bad loans in the world’s second-largest economy.

Shares in the British lender slid 6% in early London trade, against a flat index, also hurt by higher operating costs and despite the announcement of a fresh $2 billion share buyback.

Pretax profit for 2023 came in at $30.3 billion, up 78% from a year earlier but short of a consensus estimate of $34.1 billion.

China’s deepening real estate crisis has hobbled its economy and begun hurting global banks with exposure to it.

Taking a $3 billion impairment on its stake in China’s Bank of Communications (BoCom), HSBC has had the largest writedown on a Chinese bank among foreign peers.

The Bocom writedown came after a review of its likely future cash flows and outlook for loan growth and interest margins, HSBC said.

Chief Executive Noel Quinn said, however, that he believed that valuations in mainland China’s commercial real estate market had bottomed.

He added that he was seeing a “progressive and gradual recovery” but that it would “take a few years for the market to work its way through the current challenges.”

Matt Britzman, equity analyst at Hargreaves Lansdown, said that mainland China remains a question mark for HSBC and that its outlook looked somewhat worse than expected.

“2023 was a strong year for HSBC, but earnings momentum looks to be coming to an end and things are set to get tougher from here,” he said in a note to clients.

CAUTIOUS OUTLOOK, RISING COSTS

Europe’s biggest lender said it remains cautious about the loan growth outlook in the first half of 2024, against slowing economic growth in many economies where inflation persisted.

HSBC’s costs grew 6% in 2023, more than it had forecast, due to the impact of higher-than-expected bank levies in the U.S. and Britain. It also said costs would grow a further 5% in 2024, as it grapples with inflation while investing in its businesses.

The bank reported a 14.6% return on tangible equity (ROTE), a key performance target, in 2023 which fell behind an estimated 17%. It said it continues to target ROTE in the mid-teens for 2024.

HSBC’s wealth business provided a bright spot for the bank, with revenues up 8% to $7.5 billion, partly boosted by the acquisition of Citigroup’s wealth business in China last year.

The wealth unit – which HSBC has been trying to grow, particularly in Asia – also attracted net new invested assets of $84 billion, up from $80 billion in 2022.

HSBC said its bonus pool rose to $3.8 billion from $3.4 billion in the prior year, reflecting improved performance, and it would also launch a new variable pay scheme for junior and middle management staff.

Notably, Quinn saw his total pay double in 2023 to $10.6 million from $5.6 million the year before, as long-term incentives from his appointment in 2020 began to vest, boosting his variable pay.

The London-headquartered bank announced a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share.

It also said it would consider a special dividend of $0.21 per share in the first half of 2024 once the sale of its Canada business is complete.


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