HSBC posts record annual profit but misses estimates on China write-down, shares tumble 7%

HSBC‘s full-year 2023 pretax profit missed analysts’ estimates on Wednesday, hit by impairment costs linked to the lender’s stake in a Chinese bank, sinking its London-listed shares as much as 7%.

Europe’s largest bank by assets saw its pre-tax profit climb about 78% to a record $30.3 billion in 2023 from a year ago, according to its statement released Wednesday during the mid-day trading break in Hong Kong. That missed median estimates of $34.06 billion from analysts tracked by LSEG.

Chief Executive Noel Quinn also announced an additional share buyback of up to $2 billion to be completed ahead of the bank’s next quarterly earnings report. HSBC also said it would consider offering a special dividend of 21 cents per share in the first half of 2024 after it completes the sale of its Canada business.

With the highest full-year dividend per share since 2008 and three share buy-backs in 2023 totaling $7 billion, Quinn said the bank returned $19 billion to shareholders last year.

Quinn’s remuneration doubled to $10.6 million in 2023 from $5.6 million the year before, boosted in part by variable long-term incentives since his appointment in 2020.

HSBC suffered a “valuation adjustment” of $3 billion on its 19% stake in China’s Bank of Communications, Quinn said. In an interview with CNBC following the earnings release, he said this is “a technical accounting adjustment” and “not a reflection” on BoComm.

This write-down was among the items that plunged the bank’s fourth-quarter pretax profit by 80% to $1 billion from a year earlier.

HSBC’s Hong Kong shares reversed gains of about 1% after trading resumed, falling as much as 5%. The benchmark Hang Seng Index was up about 2%. Shares in London were down around 7% in early deals, set for their biggest one-day drop since 2020, according to Reuters.

Here are the other highlights of the bank’s full year 2023 financial report card:

• Revenue for 2023 increased by 30% to $66.1 billion, compared with the median LSEG forecast for about $66 billion.
• Net interest margin, a measure of lending profitability, was 1.66% — compared with 1.48% in 2022.
• Common equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 14.8%, compared with 14.2% in 2022.
• Basic earnings per share was $1.15, compared with the median LSEG forecast for $1.28 in 2023 and 75 cents for 2022.
• Dividend per ordinary share was 61 cents — the highest since 2008 — compared with 32 cents in 2022.

HSBC, which has a second home in Hong Kong, said it was focusing on the fastest growing parts of Asia, a continent where the bank makes most of its profits.

In an earnings briefing to investors and analysts, the bank said it has completed the sale of its businesses in France, Oman, Greece and New Zealand, and was in the process of exiting Russia, Canada, Mauritius and Armenia.

The bank flagged two key macroeconomic trends: declining interest rates as inflation ebbs — a development that could eat into its interest income; and a continued reconfiguration of global supply chains and trade.

“International expansion remains a core strategy for corporates and institutions seeking to develop and expand, especially the mid-market corporates that HSBC is very well-positioned to serve. Rather than de-globalizing, we are seeing the world re-globalize, as supply chains change and intraregional trade flows increase,” Quinn said in the earnings statement.

The bank is targeting a mid-teens return on tangible equity for 2024, which was about 14.5% last year.

HSBC said it will be focusing on an expansion of non-interest income revenue sources via its wealth and transaction banking business. It is expecting banking non interest income of at least $41 billion in financial year 2024.

HSBC said it’s cautious about the loan growth outlook for the first half of 2024 amid economic uncertainty, expecting a mid-single digit annual percentage growth over the medium to long term.