For HSBC (HSBA) shareholders, the costs of deepening the bank's footprint in the world’s second largest economy are becoming increasingly apparent. Further expansion in China’s Pearl River Delta, Hong Kong and the wealth management business across South East Asia pushed up adjusted operating expenses 8 per cent during the first-half. Against a 2 per cent rise in underlying income, that led to negative adjusted 'jaws' of 5.6 per cent – the difference between the rates of change in revenue and costs.
However, that investment already seems to be bearing fruit, with net lending up 3 per cent over the year to $943bn (£729bn). The banking giant continued to benefit from its ‘Asia Pivot’, with lending in the region up 11 per cent and underlying pre-tax profits ahead more than a fifth to $9.4bn. More importantly, overall loan impairment charges declined by almost a third to $407m.
Commercial banking led the way in terms of net income growth, which was up 12 per cent to $7.4bn. That was largely thanks to a boost from the global liquidity and cash management business, which benefited from wider margins and increased customer balances. Retail banking and wealth management underlying pre-tax profits were 7 per cent higher at $7.4bn, with strengthening revenue offsetting growth in operating expenses. In retail banking, higher customer balances and margin growth boosted income from customer accounts, savings and deposits. That offset mortgage margin compression from higher funding costs in the UK, Hong Kong, mainland China and the US, which dampened personal lending income.
The global banking and markets business reported a marginal uplift in underlying pre-tax profit to $3.6bn. Double-digit revenue growth in foreign exchange, securities services and global liquidity and cash management income offset a decline in rates and credit of around a third.
Analysts at broker Investec expect adjusted net tangible assets of 754¢ a share at December 2018, up from 726¢ the same time the previous year.
| HSBC HOLDINGS (HSBA) | ||||
| ORD PRICE: | 712.3p | MARKET VALUE: | £ 142bn | |
| TOUCH: | 712.2-712.4p | 12-MONTH HIGH: | 799p | LOW: 651p |
| DIVIDEND YIELD: | 5.6% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 922¢ | LEVERAGE: | 15.4 | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 32.3 | 10.2 | 35 | 31 |
| 2018 | 33.0 | 10.7 | 36 | 31 |
| % change | +2 | +5 | +3 | |
| Ex-div: | 16 Aug | |||
| Payment: | 27 Sep | |||
| £1=$1.29 | ||||
