Digital Zeitgeist – Even As Payouts Are Going Up HSBC Believes That The Rate Hike Profit Bonanza Has Reached Its Ceiling

SINGAPORE/LONDON, Feb 21 (Reuters) – Even after Europe’s largest bank reported a 92% surge in quarterly profit and pledged more regular dividends and share buybacks, HSBC dampened investors’ expectations of a sustained income bonanza from rising global interest rates. 

The financial institution with its headquarters in London said on Tuesday that it will be paying a special dividend to its shareholders in the amount of $0.21 per share using the profits from the $10 billion sale of its Canada division.

Yet, despite the promises to pay out dividends, the lender’s stock slid by 2% in Hong Kong as analysts considered income forecasts that experts regarded to be moderate in light of an environment in which interest rates were rising.

HSBC, which has client deposits totaling $1.3 trillion, gains more than many other, smaller banks from changes made by the central bank since these boosts enable the bank to charge a bigger margin on its loans and mortgages.

The bank, on the other hand, stated that it anticipated its net interest income to be at least $36 billion in 2023, which is less than the $37 billion prediction and the $38 billion annualised amount that analysts computed based on the most recent quarterly statistics.

Chief Executive Noel Quinn told Reuters that the conservative estimates were in part due to pressure from competitors to hike rates on deposits, among other factors.

“We are comfortable with consensus being around $37 billion, we are not looking to move that,” Quinn said.

After coming under pressure from its largest shareholder, Ping An Insurance Group, to break off its Asian business division in order to raise returns, Hsbc has been striving to strengthen its investor relations. This comes after HSBC rejected the plan of splitting off its Asian division.

The bank with a focus on Asia, which counts Hong Kong as its largest market, also announced that it will resume paying quarterly dividends in 2023 and would explore bringing up the consideration of additional share buybacks to the first quarter of 2023.

HSBC’s London-listed shares, which are currently trading at their highest level in approximately three and a half years, have rebounded 45% from their lows in October 2022. At that time, investors were scared off by a drop in quarterly profit as well as a sudden change in the company’s chief financial officer, which caused its shares to fall by 7%.

The shares have increased by 25% since Quinn took over in March of 2020, which was right around the time that the COVID-19 epidemic was sweeping the globe. Despite this, the overall market has increased by 50% during this time. The stock price has increased by 20% so far this year, compared to a gain of 7% in the FTSE index.

The conservative stance of HSBC was similar to that of its British competitor NatWest, which cautioned a week ago that the profit made from higher interest rates may have already reached its maximum.

Quinn, who is overseeing a programme of job cuts aimed at stripping out layers from the bank’s bloated management structure, said more was to come.

“There will be no easing off at all on costs … We are now considering up to $300 million of additional costs for severance in 2023,” he said.

HSBC reported pretax earnings of $5.2 billion for the fourth quarter, up from $2.7 billion a year earlier and ahead of the $4.96 billion average estimate of analysts compiled by the bank.

HSBC reported that it expects annual credit losses to reach $3.6 billion, which is more than the $3.2 billion that analysts had projected. This is because growing inflation is putting pressure on lenders, and issues in China’s housing market continue to persist.

Yet, according to Quinn’s comments to Reuters, the prognosis for the industry had brightened in January, in part because of policy initiatives that were designed to prop up the sector.

The annual profit dropped to $17.5 billion from $18.9 billion for 2021 owing to an impairment of $2.4 billion connected to the sale of its retail banking business in France. This caused the annual profit to fall despite the spike in the fourth quarter.

This was in line with the average forecast of $17.5 billion that the bank had collected from 22 different analysts.

Nevertheless, HSBC stated that it is still anticipating that the sale of its Russia business would be finalised during the first half of 2023, resulting in a loss of $300 million.

Online sources: reuters.com, hsbc.com

The post Even As Payouts Are Going Up HSBC Believes That The Rate Hike Profit Bonanza Has Reached Its Ceiling appeared first on GPM Invest.