HSBC Earnings Hit by Market Volatility -- Update
May 03 2016 - 2:56AM
Dow Jones News
By Julie Steinberg and Anjie Zheng
HONG KONG--HSBC Holdings PLC said market volatility in the
beginning of 2016 crimped its performance as it reported a 18.2%
decline in net profit in the first quarter of this year.
The British bank has been grappling with a falling share price
and concerns from investors over its strategy in Asia. HSBC's share
price on the Hong Kong stock exchange is down about 32% from a year
ago. Shares in Hong Kong on Tuesday rose by as much as 1.3% to
HK$52.40, recovering from a 1.4% loss before the earnings
release.
"Our first quarter performance was resilient in tough market
conditions that affected the entire banking sector," said Chief
Executive Stuart Gulliver. "Profits were down against a very strong
first quarter of 2015, but we increased market share in many of the
product areas that are critical to our strategy."
The bank said Tuesday that first-quarter net profit fell to
US$4.3 billion from US$5.26 billion a year ago. Revenues fell 5.8%
in the first quarter to US$14.98 billion, mainly as unpredictable
markets dented client activity in its global banking and markets
unit, and life insurance brought in lower revenue.
Loan impairment charges totaled $1.16 billion in the first
quarter, up from $570 million a year earlier, and were driven by
the oil and gas, and metals and mining sectors, as well in
countries including Brazil, Canada and Spain, the bank said.
There were some bright spots: The bank said it increased market
share in key areas including Asian debt capital markets, China
mergers and acquisitions and syndicated lending in Asia. HSBC has
joined the top ranks of takeover deal makers in China over the past
year. The bank is advising China National Chemical Corp. on its $43
billion takeover of Swiss pesticides and seed maker Syngenta AG,
China's biggest overseas deal ever.
Meanwhile, revenues from current and savings accounts grew in
Hong Kong, with net interest income up 10% from a year earlier to
$1.82 billion.
Once a sprawling bank across 87 countries, HSBC has exited
swaths of businesses across the globe to improve profits and cope
with tougher regulations since the financial crisis. Its main
regions now are Asia, the U.K. and North America. In February, HSBC
decided to stay headquartered in London after considering a return
to its original Hong Kong base.
The bank has been hit this year by darkening sentiment toward
commodities and emerging markets, two key planks of its business.
HSBC executives have said Asia will continue to drive growth for
the bank, a strategy that may pay off in the future but is seen as
a short-term drag on earnings.
Some investors and analysts have raised concerns about HSBC's
strategy in the Pearl River Delta region, including uncertainty
over foreign banks' ability to compete for lending and deposits
against big state-owned banks. HSBC's ambitions could also be
tempered by China's slowdown and a weaker operating environment in
Asia Pacific.
Moody's Investors Service in March revised to negative from
stable its ratings outlook on HSBC, spurred by the ratings firm's
concern that "Hong Kong's increasing economic and financial
linkages with China...give rise to potential negative spillovers"
from that country "and ultimately weaker growth."
Mr. Gulliver acknowledged last month that the share price "isn't
where we want it to be," and said that keeping costs down and
revenue up are big challenges for the bank this year because of
weak economic conditions.
He said Tuesday the bank is on track with its cost-savings
program and plan to reduce riskier assets on its balance sheet.
Operating expenses totaled $8.26 billion in the first quarter, down
7% from a year earlier. Excluding an increased credit related to a
bank levy charge from the prior year, the bank said "costs were
broadly unchanged."
HSBC "has been cutting costs for more than five years now and
there [isn't] much they can do incremental to current plans in the
near term," analysts at Bernstein Research said in a note on
Tuesday after earnings were released.
The bank said Tuesday it faces one final regulatory hurdle--a
decision from Brazil's Competition Agency--before the sale of its
Brazil business can be approved. The bank announced last year it
would sell its Brazilian business for $5.2 billion.
Write to Julie Steinberg at julie.steinberg@wsj.com and Anjie
Zheng at Anjie.Zheng@wsj.com
(END) Dow Jones Newswires
May 03, 2016 02:41 ET (06:41 GMT)
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