- Impairments in line, but rising
- Net income seen at more than $35bn
HSBC (HSBA) went for the full shareholder reward strategy as the bank’s third-quarter update followed the same disappointing trend seen at high-street peers. The $3bn (£2.43bn) share buyback announced in the update brings the total for the year to $7bn so far, in three tranches. The shareholder goodies continued with a third interim dividend of 10ȼ a share adding to the overall sense of benevolent largesse. However, the good times may only be an illusion if its core markets in China go into a long period of underperformance.
The company’s $7.7bn profit for the quarter was below consensus forecasts and subject to a strange mix of directly opposing forces. For example, the profit was helped, in part, by wider margins, but also from the reversal of potential impairments related to the sale of its French operations, which may now be reclassified after uncertainty over its completion – this reversal added at least $2.1bn to the bottom line. Meanwhile, hedging charges had a negative impact of $600mn, although these may also be reversed depending on market conditions during the year. The bank’s net interest margin expanded by 19 basis points to 1.70 per cent as Asian clients, particularly, moved their savings into term deposits to take advantage of better interest rates.
Meanwhile, impairments stayed broadly stable year on year at $1.1bn, although $500mn of this is now directly attributable to the sinking Chinese commercial real estate market, adding a further drag on performance. A like-for-like comparison is not easy to make as the comparable quarter in 2022 experienced from pandemic reserve releases.
Management expects that net income will be above $35bn for the year, while its total gross loan book is likely to bear credit losses amounting to 40 basis points.
HSBC will announce its full-year results on 21 February.
Last IC view: Hold, 660p, 1 Aug 2023
