HSBC Holdings reported a jump in annual pre-tax profit that missed expectations and unveiled a plan to raise $7 billion (€5.7b) over the next four months to bolster its capital base. The bank is preparing for growth under a new leadership.
Europe's biggest lender by market capitalisation has undergone a painful restructuring under chief executive Stuart Gulliver that has seen the bank cut thousands of jobs, shut branches and exit markets. The restructuring, coupled with a beneficial market environment, is now paying off for HSBC.
Mr Gulliver is stepping down on Tuesday after more than seven years at the helm, and will be replaced by company veteran John Flint.
HSBC reported on Tuesday a profit before tax of $17.2 billion (€13.9bn) for 2017, compared with $7.1 billion the year before but below the $19.7 billion average estimate of 17 analysts polled by Thomson Reuters.
Those estimates did not all take into account a $1.3 billion writedown for 2017 that HSBC took, triggered by cuts in the US corporate tax rate which meant banks had to book losses on deferred tax assets they built up during loss-making times.
Its year-ago profit figure reflected a $3.2 billion impairment of goodwill in the global private banking business in Europe and the impact of its sale of operations in Brazil.
The lender said it was planning additional tier 1 capital issuance of between $5 billion and $7 billion during the first half of 2018, and that it would undertake share buy-backs “as and when appropriate”.
HSBC shares fell 3.2 per cent in Hong Kong following the announcement as investors registered the profit performance and disappointment over the absence of a share buy-back.
Look east
Mr Flint, who has been with the bank since 1989 and most recently as the head of its retail banking and wealth unit, will be charged with steering HSBC back to growth, and will likely look east, with plans to further a strategy of investing in China’s southern Pearl River delta region.
Any growth plans should be helped by a more favourable interest rate environment for the bank’s deposit-heavy franchise than Mr Flint’s predecessor enjoyed.
Rising interest rates helped the bank to increase revenues in its retail division by 9 per cent in 2017, particularly from growing deposits and charging higher spreads in its second home market of Hong Kong.
HSBC grew revenues in its investment banking division by a more modest 3 per cent, a relatively strong performance given the subdued market environment throughout 2017 that hammered banks’ bond trading income in particular.
US business
Mr Flint said he will update investors with his thoughts on where to take the bank’s strategy before it reports half-year results in June.
That could include the results of a review into HSBC’s underperforming US business which has long suffered from a lack of scale and the after-effects of the bank’s disastrous acquisition of Household International in 2003.
“We are doing a piece of work around the US business at the moment. I don’t want to prejudge any conclusions,” Mr Flint said.
HSBC’s common-equity tier 1 ratio, a key measure of financial strength, was 14.5 per cent in 2017, compared to 13.6 per cent last year and 11.9 per cent in 2015. Its reported revenues rose to $51.4 billion from $48 billion a year ago. – Reuters
