One of the biggest attractions for investors in HSBC (HSBA) is its superior income status, particularly when compared with its UK-listed banking peers. With that in mind, it is unsurprising that shareholders reacted positively to these first-half results. The banking giant increased its common equity tier-one ratio – as a proportion of risk-weighted assets – to 14.7 per cent, from 13.6 per cent at the end of December. That more comfortable capital position prompted management to recommend a further buyback of up to $2bn (£1.5bn) shares during the second half of the year, meaning it will have bought back $5.5bn shares since August 2016.
Operating costs were cut by around $0.9bn, taking the total cut since 2015 to $4.7bn, and largely accounting for the uplift in statutory pre-tax profits. Management says it remains on track to reduce annual costs by around $6bn by the end of the year. Meanwhile, adjusted loan impairment charges for the first half fell by $0.9bn, compared with last year's first half, thanks to improved credit conditions at its commercial and global banking and markets divisions.
More encouragingly, all three of its largest businesses grew net operating income. In retail banking and wealth management, adjusted net operating income for current accounts, savings and deposits was up 17 per cent due to wider spreads and larger balances in Hong Kong and Mexico. This was partially offset by lower personal lending revenue, which partly reflected narrower margins on mortgage lending in the UK. The wealth management business provided the biggest uplift in revenue for this division, testament to the banking group’s ‘Asia pivot’. An increase in demand for mutual funds in Hong Kong and higher insurance sales in Asia as a whole helped lift wealth management income by 32 per cent to $3.2bn.
Growing its share of the European rates and credit markets, coupled with a stronger equities market, helped push up income for the global banking and markets business by 10 per cent to $3.7bn. In commercial banking, wider margins in global liquidity and cash management resulted in a 9 per cent increase in income earned for this type of business. This offset pressure on credit and lending revenue from increased competition in the Hong Kong and mainland China markets.
Analysts at Investec expect net tangible assets of 694.5¢ per share at December 31 2017, up from 692.1¢ the previous year.
| HSBC HOLDINGS (HSBA) | ||||
| ORD PRICE: | 760.4p | MARKET VALUE: | £153bn | |
| TOUCH: | 760.3-760.5p | 12-MONTH HIGH: | 772p | LOW: 482p |
| DIVIDEND YIELD: | 5.2% | PE RATIO: | 99 | |
| NET ASSET VALUE: | 935¢ | LEVERAGE: | 14.3 | |
| Half-year to 30 Jun | Total operating income ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 2016 | 35.3 | 9.7 | 32 | 20 |
| 2017 | 32.3 | 10.2 | 35 | 20 |
| % change | -8 | +5 | +9 | - |
| Ex-div: | 3 Aug | |||
| Payment: | 20 Sep | |||
| £1=$1.30 | ||||
