An overseas bias and commodities exposure have helped fuel an explosive rise in HSBC's (HSBA) share price since the EU referendum. However, weaker income (on a statutory basis) from all of the banking giant's divisions, and some painful one-offs, dented investor confidence.
The banking group made some progress against its strategic objectives to strengthen its structure. Risk-weighted assets (RWAs) declined by $143bn, partly as a result of selling its Brazilian operations: RWAs have been cut by $267bn during the past two years, against a management target of $290bn by the end of 2017. Adjusted operating costs were also 4 per cent lower than 2015, which meant the bank was able to deliver positive adjusted operating 'jaws' (the gap between the rates of growth of revenue and operating expenses) 1.2 percentage points.
However, the Brazil business sale also took a chunk out of net interest income, which fell by 8 per cent. Lower yields on customer lending meant the net interest margin narrowed by 15 basis points to 1.73 per cent. Weaker sentiment among fund-buyers weighed on wealth management, and retail banking growth in Asia couldn't quite make up the ground in this division: adjusted revenue was 2 per cent lower at period-end.
Commercial banking generated a marginal uptick in adjusted revenue, primarily as a result of a $434m reduction in loan impairment charges. An improving outlook for the oil and gas sector meant the business was also able to release some of its allowances previously made for loans by this division. Conversely, a small number of individually assessed exposures in the oil and gas and metals and mining sectors helped to send loan impairment charges up $383m for the investment bank.
Weaker investor confidence in Europe and Asia sent adjusted sales for the private banking business down 11 per cent, as broking and trading activity declined, while net outflows amounted to $17bn. Following its downsizing, the business was also forced to write off the remaining $3.2bn in goodwill for its European private banking operations, primarily relating to its previous purchase of Safra Republic Holdings in 1999.
Analysts at Shore Capital expect adjusted net tangible assets of 739¢ for the 12 months to December 2017, up from 692¢ the previous year.
HSBC HOLDINGS (HSBA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 664.6p | MARKET VALUE: | £132bn | |
| TOUCH: | 664.6-664.7p | 12-MONTH HIGH: | 715p | LOW: 414p |
| DIVIDEND YIELD: | 6.2% | PE RATIO: | 118 | |
| NET ASSET VALUE: | 919¢ | LEVERAGE: | 14.6 | |
| Year to 31 Dec | Total operating income ($bn) | Pre-tax profit ($bn) | Earnings per share (¢ ) | Dividend per share (¢) |
|---|---|---|---|---|
| 2012 | 82.5 | 20.6 | 74 | 41 |
| 2013 | 78.3 | 22.6 | 84 | 49 |
| 2014 | 74.6 | 18.7 | 69 | 50 |
| 2015 | 71.1 | 18.9 | 65 | 51 |
| 2016 | 59.8 | 7.1 | 7 | 51 |
| % change | -16 | -62 | -89 | - |
Ex-div: 23 Feb Payment: 6 Apr £1=$1.24 | ||||
