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HSBC Profits Rise 40%

Profits at HSBC rose to $14.9 billion in the year to date, an increase of 41% versus 2016. Income also rose 55% over the period

Derya Guzel 30 October, 2017 | 11:27AM

HSBC (HSBA) has revealed an income of $11.5 billion for the first nine months of 2017, a 55% increase compared with last year. Profits also increased to $14.9 billion in the year to date, a rise of 41% versus the previous year, mainly supported by a 60%-plus decline in loan impairment charges.

Morningstar analysts maintain the fair value estimate of 690p for HSBC, and confirm that HSBC has a narrow moat, or competitive advantage over peers, following third-quarter 2017 results.

HSBC’s reported top line stood at $39.1 billion for the nine months of 2017, an increase of $1.1 billion or 3%, driven by higher revenue in retail banking and wealth management and commercial banking, owing to a higher average deposit and improved spreads in Asia, and higher revenue in global banking and markets, partly offset by lower revenue in the corporate centre and global private banking segments. The increase in revenue was supported by a sharp jump in net favourable movement in insignificant items.

While net interest income generation for the third quarter showed signs of improvement compared with last quarter, cumulative net interest income generation at $21 billion is trailing behind last year’s $23 billion. In terms of fee and commission income generation, although flattish on a quarterly basis, cumulative fee and commission income also decelerated to $9.8 billion versus $9.9 billion in 2016.

The decline in net interest income was mainly due to the continuation of pressure on asset yields, reflecting negative interest rates in Europe and increased competition and decreased yields on mortgages in the UK, partially offset by increased lending volume growth in Asia and increased rates in Mexico.

On the cost side, operating expenses on a reported basis for the year to date stood at $25 billion, 9% lower year over year due to a decrease in significant items; total cost on an adjusted basis was at $22.4 billion, or 4% higher, reflecting an increase in performance-related pay and investments in business growth programmes. HSBC indicated that the positive impact coming from the cost saving initiatives broadly offset inflation and continuing investment in regulatory and compliance programmes.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
HSBC Holdings PLC756.50 GBX-1.60
About Author

Derya Guzel  is an Equity Analyst for Morningstar