Higher costs, stock rout hit HSBC profit growth

HSBC has reported a profit before tax of US$19.9 billion (S$27 billion) for last year, up 16 per cent from the year before, but below analysts' expectation of US$22 billion.
HSBC has reported a profit before tax of US$19.9 billion (S$27 billion) for last year, up 16 per cent from the year before, but below analysts' expectation of US$22 billion.PHOTO: BLOOMBERG

It warns weak economic outlook for China, Britain will be a hurdle

HONG KONG • HSBC Holdings has posted disappointing profit growth as higher costs and a stock rout took a toll on business, while cautioning that a weaker economic outlook for China and Britain would throw up further hurdles this year.

The bank remains alert to the downside risks of the current economic environment, global trade tensions and the future path of interest rates, chief executive John Flint said yesterday, rounding off his first year at the helm of the firm.

Hong Kong shares of HSBC fell as much as 2.7 per cent after the earnings announcement.

An economic slowdown in China, exacerbated by its trade war with the United States, poses a challenge to HSBC's strategy of pouring more resources into Asia, where it already makes more than three-quarters of its profits.

Europe's biggest bank by market value is also being buffeted by headwinds from Britain, which grew at its slowest in half a year in the three months to last November as factories suffered from tough global trade conditions and the approach of Brexit.

HSBC reported a profit before tax of US$19.9 billion (S$27 billion) for last year, up 16 per cent from US$17.2 billion the year before, but below an average estimate of US$22 billion, according to Refinitiv data based on forecasts from 17 analysts.

It said it would pay a full-year dividend of US$0.51 per share, roughly in line with analysts' expectations.

 

The bank also said it is confident that it can maintain the dividend at this level.

However, it failed to achieve "positive jaws" last year, a key metric watched by investors which tracks whether the bank is growing revenues faster than costs, for which it blamed the negative market environment in the fourth quarter.

HSBC plans to achieve "positive adjusted jaws" this year.

"Despite more challenging market conditions at the end of the year and a weaker global economic outlook, we are committed to the targets we announced in June," Mr Flint said in a statement.

The CEO had said last June that HSBC would invest US$15 billion to US$17 billion in three years in areas including technology and China, while keeping profitability and dividend targets little changed.

Yesterday, Mr Flint said: "We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business."

China's economic growth slowed to 6.6 per cent last year, the weakest in 28 years, weighed down by rising borrowing costs and a clampdown on riskier lending that starved smaller, private companies of capital and stifled investment.

HSBC's core capital ratio, a key measure of financial strength, fell to 14 per cent at end-December from 14.5 per cent at end-2017, due mainly to adverse foreign exchange movements.

Its Asia profits grew 16 per cent to US$17.8 billion, accounting for 89 per cent of the group profit.

Since taking over from Mr Stuart Gulliver last February, Mr Flint has stuck largely to the same China-focused strategy as his predecessor while attempting to revive HSBC's ailing US franchise and putting less emphasis on its investment bank.

REUTERS

A version of this article appeared in the print edition of The Straits Times on February 20, 2019, with the headline 'Higher costs, stock rout hit HSBC profit growth'. Print Edition | Subscribe