LONDON BRIEFING: HSBC "Encouraged" Despite Profit Missing Expectations

LONDON (Alliance News) - HSBC Holdings on Tuesday reported strong growth in all of its global ...

Alliance News 19 February, 2019 | 8:03AM
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LONDON (Alliance News) - HSBC Holdings on Tuesday reported strong growth in all of its global units, but missed profit consensus, with particularly strong growth in Asia allaying fears that the US's trade war with China could hurt the Asia-focused bank's top-line growth.

In 2018, pretax profit widened 16% to USD19.89 billion from USD17.17 billion the year prior. This was after revenue rose 4.5% to USD53.78 billion from USD51.45 billion the year before.

The reported pretax profit fell short of market expectations. Analyst consensus saw HSBC achieving pretax profit of USD20.93 billion. HSBC shares were down 1.5% in Hong Kong trading.

The bank's net interest income for 2018 came in at USD30.44 billion slightly below consensus. HSBC's net operating income of USD52.17 billion was below consensus of USD54.59 billion.

"These are good results that demonstrate progress against the plan that I outlined in June 2018," HSBC Chief Executive Officer John Flint said.

In June 2018, newly appointed Flint described a strategy in which the banking group would return to "growth mode" following its period of restructuring.

"Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017," Flint added. "This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020."

Return on tangible equity stood at 8.6% in 2018, wider than the 6.8% reported in 2017.

The CET1 solvency ratio for HSBC in 2018 stood at 14.0%. Marginally below consensus of 14.1%.

HSBC ended 2018 with USD865.3 million in risk-weighted assets, higher than consensus of USD871.3 million.

Within divisions, HSBC's Retail Banking & Wealth Management unit increased its adjusted pretax profit by 9.3% to USD7.08 billion. The bank's Commercial Banking unit increased profit by 12% to USD7.67 billion.

HSBC's maligned Global Banking & Markets unit increased adjusted pretax profit by 3.9% to USD6.08 billion. The unit holds HSBC's investment bank which has been criticised in the past few years.

In Asia - where HSBC generates most of its profit - saw a 16% rise pretax profit to USD17.79 billion.

For the fourth quarter, HSBC held its dividend unchanged at 21 US cents per share. For the full year, the dividend was also unchanged at 51 cents with the firm "confident" of maintaining the dividend at this level in the future.

"HSBC is in a strong position," Chair Mark Tucker said. "Our performance in 2018 demonstrated the underlying health of the business and the potential of the strategy that John Flint, our Group Chief Executive, announced in June."

"Despite a challenging external environment in the fourth quarter, all of our global businesses delivered increased profits and the group achieved a higher return on tangible equity in 2018," Tucker added. "Asia again contributed a substantial portion of the group's profits, notably in Retail Banking & Wealth Management and Commercial Banking."

HSBC said it has made a "good start" to 2019, with January ahead of the lender's own expectations, but noted the "softening" credit performance in the UK. HSBC also noted it is continuing its Brexit preparation, believing its French operations give it a "major advantage".

The stock was down 2.6% in early UK trading.

Here is what you need to know at the London market open:
FTSE 100: down 0.2% at 7,204.36
Hang Seng: down 0.4% at 28,240.92
Nikkei 225: closed up 0.1% at 21,302.65
DJIA and S&P 500: US markets closed on Monday.
GBP: soft at USD1.2906 (USD1.2933)
EUR: flat at USD1.302 (USD1.1309)

Gold: soft at USD1,324.91 per ounce (USD1,326.35)
Oil (Brent): flat at USD66.47 a barrel (USD66.50)

(changes since previous London equities close)
Tuesday's Key Economic Events still to come

0930 GMT UK labour market statistics
0930 GMT UK Finance's monthly mortgage lending trends statistics
1100 GMT Ireland labour force survey

1000 CET EU euro area balance of payments
1000 CET Italy industrial turnover & orders
1100 CET EU construction output
1100 CET Germany ZEW Indicator of Economic Sentiment
1100 CET Italy balance of payments

1000 EST US NAHB Housing Market Index
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Tuesday's Shareholder Meetings

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
Wizz Air Holdings PLC 3,435.00 GBX 0.41 -
HSBC Holdings PLC 593.70 GBX -0.77
Ryanair Holdings PLC 8.54 EUR 0.54 -
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