- Common equity tier 1 capital ratio up by 50 basis points
- Pre-tax profits were up by 43 per cent to $12.9bn
An eventful first quarter for HSBC Holdings (HSBA) saw the banking group come to the rescue of Silicon Valley Bank’s UK arm. The £1 deal that was completed in March has resulted in a “provisional gain of $1.5bn” (£1.2bn), which isn’t bad going for what amounts to a distressed asset. Management described SVB UK as a “natural fit for HSBC”, providing enhanced “access to more of the entrepreneurs in the technology and life sciences sectors”.
Customers of SVB UK will probably be reassured by HSBC’s capital base given the risk profile of growth businesses in this space. The group’s common equity tier 1 capital ratio increased by 50 basis points to 14.7 per cent, driven in part by capital generation net of the dividend accrual.
Beyond the SVB deal, the bank detailed a strong set of metrics for the first quarter, with revenue up by nearly two-thirds to $20.2bn. That wouldn’t have surprised analysts given the trajectory of interest rates over the past year, but the group’s shares were still marked up substantially in early trading. Pre-tax profits more than trebled to $12.9bn at constant currencies, helped along by a $2.1bn reversal of an impairment relating to the planned sale of the group’s retail banking operations in France. The net interest margin of 1.69 per cent was up by 50 basis points on the first quarter of 2022, while operating expenses fell by 7 per cent to $7.6bn.
Banking analysts will be looking closely at the direction of customer lending balances as worries over the global economy persist. Those balances were up by $32bn at constant currencies, although this was due to both the reclassification of the French retail assets previously classified as “held for sale” and the incorporation of the SVB UK assets. The overall outcome was described as “stable”, but this will be a crucial metric as we move through the year.
The bank’s net interest income expectations – at least $34bn – are unchanged from the full-year guidance and management remains confident of hitting its return on average tangible equity target of at least 12 per cent for 2023.
The integration of SVB UK may well generate new business for HSBC, particularly if the breadth of its international reach acts as a draw for UK start-ups. However, it’s unlikely that it will allay further criticism from the bank’s biggest shareholder, Chinese insurer Ping An, which has recently accused the group of exaggerating the risks involved in spinning off its Asian operations. For now, the bank has decided to reward shareholders with the launch of a $2bn share buyback and a 10 cent per share dividend.
Last IC view: Hold, 542p, 22 Feb 2022
