'Good, but not quite good enough', seemed to be the shareholder verdict on HSBC's (HSBA) 2017 figures. There was a lot for outgoing chief executive Stuart Gulliver to shout about: all four of the banking group’s core divisions grew underlying net interest income and pre-tax profits, although the overall returns fell short of consensus expectations. The bank also exceeded its $290bn risk-weighted asset (RWA) disposal target, extracting a further $71bn last year, yet its return on equity was just 5.9 per cent, well up on the 2016 comparative, but short of its 10 per cent medium-term target.
The ‘Asia pivot’ continued to pay off last year, with the region accounting for 89 per cent of reported group profits. Retail banking income was up 6 per cent to $13.5bn, as revenue from current accounts, savings and deposits benefited from wider spreads and higher balances in Hong Kong, as well as the US and Mexico. Demand for wealth management market products in Hong Kong – particularly mutual funds and retail securities – also boosted sales for this business by almost a fifth.
The commercial banking segment may have incurred increased operating expenses from product investment, but it still managed to post 1.3 per cent positive adjusted jaws – the difference between the rates of change in revenue and costs. A near-50 per cent reduction in loan impairment charges, primarily relating to exposure to the oil and gas sector, helped to push underlying pre-tax profits up 15 per cent to £6.8bn.
Lower volatility meant global markets revenue was flat. An uptick in equities income of more than a quarter, as its Prime Financing products grew market share, was largely offset by lower commodities and fixed income and currency trading. However, higher interest rates in the US and Asia helped boost global liquidity and cash management revenue, which grew 17 per cent. Overall, the global banking and markets business managed a respectable 3 per cent increase in underlying income.
Analysts at Shore Capital expect adjusted net tangible assets of 754¢ for the December 2018 year-end, up from 726¢ in 2017.
| HSBC HOLDINGS (HSBA) | ||||
| ORD PRICE: | 733.3p | MARKET VALUE: | £147bn | |
| TOUCH: | 733.3-733.4p | 12-MONTH HIGH: | 799p | LOW: 618p |
| DIVIDEND YIELD: | 5.0% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 951¢ | LEVERAGE: | 14.3 | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 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 |
| 2017 | 63.8 | 17.2 | 48 | 51 |
| % change | +7 | +142 | - | - |
| Ex-div: | 22 Feb | |||
| Payment: | 6 Apr | |||
| £1=$1.4 | ||||
