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:
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MARKETS
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FTSE 100: down 0.2% at 7,204.36
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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.
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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)
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ECONOMICS AND GENERAL
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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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A Chinese delegation will arrive in Washington for talks on Tuesday, the White House said, as the two sides attempt to resolve their trade dispute ahead of a March 1 deadline. After an initial series of meetings between deputies, high-level talks will begin on Thursday, the White House said late Monday. Trade Representative Robert Lighthizer will lead the US team from then, while Chinese Vice Premier Liu He is expected to represent China. US Treasury Secretary Steven Mnuchin, Secretary of Commerce Wilbur Ross, White house economic adviser Larry Kudlow and trade adviser Peter Navarro also will be present.
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European Commission President Jean-Claude Juncker does not expect US President Donald Trump to impose special tariffs on EU cars, as the German government on Monday said it hoped for a negotiated solution. The US Department of Commerce submitted to President Trump its assessment over whether importing cars and parts is affecting national security, the department said in a statement late Sunday. Trump could now decide to impose tariffs based on the report but Juncker remains confident. "Trump has given me his word that there will be no car tariffs for the time being. I believe him," he told the Stuttgarter Zeitung newspaper in its Tuesday issue.
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Jeremy Corbyn has been warned he faces more resignations by Labour members of Parliament unless he gets a grip of the problem of anti-Semitism within the UK opposition party's ranks. Party chairman Ian Lavery faced an angry backlash at a stormy meeting on Monday of the Parliamentary Labour Party after seven MPs earlier announced they were quitting in protest at Corbyn's leadership. Labour sources said Lavery stressed the leadership's commitment to rooting out anti-Semitism at what was described as a "heated" behind-closed-doors gathering at Westminster. The clashes came at the end of a day which saw seven MPs walk out of the party, condemning Corbyn's stance on Brexit as well as his handling of the anti-Semitism issue, in potentially the most significant split in British politics for a generation.
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Leaving the EU with no deal would be "catastrophic" for UK manufacturing, killing off some sectors of industry overnight, the government is being warned. Judith Hackitt, head of Make UK, formerly the EEF, will tell the organisation's annual manufacturing dinner in London that some companies have already moved production overseas. A survey of more than 400 firms for Make UK showed that half believe leaving the EU with no deal would make the UK a less attractive location for manufacturing.
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California and 15 other US states have filed a lawsuit against President Donald Trump to challenge his declaration of a national emergency. The group of states, led by California Attorney General Xavier Becerra, filed the lawsuit in the US District Court for the Northern District of California on Monday. "We're suing President Trump to stop him from unilaterally robbing taxpayer funds lawfully set aside by Congress for the people of our states," Becerra said in a statement. Trump declared a national emergency on Friday to bypass Congress and secure funding for a wall on the US southern border.
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BROKER RATING CHANGES
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SOCGEN RAISES RYANAIR TO 'BUY' (HOLD) - PRICE TARGET 14.00 (12.80) EUR
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SOCGEN CUTS WIZZ AIR TO 'HOLD' ('BUY') - TARGET 3480 (3550) PENCE
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COMPANIES - FTSE 100
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InterContinental Hotels Group reported a 26% fall in annual profit due to exceptional costs, significantly missing analysts' forecasts. Despite the profit slump, IHG hiked its total annual dividend by 10%. For 2018, the FTSE 100 hotel operator posted pretax profit of USD485.0 million, down from USD656.0 million in 2017. Revenue increased 6.4% to USD4.34 billion from USD4.08 billion. The slump in pretax profit was due to an exceptional charge of USD104.0 million for acquisition & integration costs, litigation, reorganisation costs, and expenses related to the settlement of the pension scheme. Operating profit rose 8% year-on-year to USD816.0 million from USD758.0 million. Company-compiled consensus of 17 analysts had forecast operating profit for 2018 coming in at USD858.3 million and pretax profit at USD770 million, meaning that the company results missed these key metrics by 4.9% and 37%, respectively.
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Mining firm BHP Group said interim profit and revenue both rose and debt declined, while full year copper guidance has been given a boost. For the six months ended December, pretax profit grew 4.5% on the year to USD6.80 billion as revenue rose 1.0% to USD20.74 billion. BHP is to hold its interim dividend per share at 55.0 US cents, unchanged on the year prior. Net debt fell 36% to USD9.89 billion from USD15.41 billion the year prior. BHP has increased copper production guidance for its year ending June to be between 1.65 million and 1.74 million tonnes compared to 1.75 million tonnes the year prior.
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Kumba Iron Ore - in which Anglo American holds a 70% stake - said profit fell sharply in 2018 after revenue struggled amid drops in sales and production, with the annual dividend also dipping slightly despite a boost to the final payout. In 2018, pretax profit narrowed 23% to ZAR16.68 billion from ZAR21.69 billion the year prior. This was after revenue fell 1.4% to ZAR45.73 billion from ZAR46.38 billion the year before. Performance was hurt by a fall in iron ore sales by 3.6% to 43.3 million tonnes from 44.9 million tonnes in 2017. This echoed a 4.2% decrease in total iron ore production to 43.1 million tonnes in 2018 from 45.0 million tonnes in 2017. Kumba proposed a 15.73 rand cent final dividend per share, up 4.9% from 15.00 cents the year prior. For the full year, the dividend fell 2.4% to 30.24 cents from 30.97 cents the year before.
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British Airways said it has launched new routes from London City Airport to Germany's beer capital Munich. The British flag carrier, part of International Consolidated Airlines Group, will operate three daily flights to Munich, with fares starting at GBP64 each way with hand baggage only. This year British Airways also has increased frequency to Berlin from the Docklands airport to 18 return flights a week.
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COMPANIES - FTSE 250
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Transport company FirstGroup's trading has been in line with expectations since September 2018 and it has also kept its full year outlook unchanged. FirstGroup said Rail like-for-like passenger revenue growth slowed to 4.2% though bus like-for-like passenger revenue growth was 1.3%. In addition, the company said its troubled US bus business Greyhound continues to face a difficult trading environment. In addition, rival Go-Ahead has agreed to buy a Manchester bus depot, including 163 buses, from FirstGroup for GBP11.2 million in cash. "Our overall trading performance in the period was in line with our expectations; in particular last summer's strong bid season in First Student, our largest division, together with further momentum in First Bus, support our unchanged outlook for the full year," said FirstGroup Chief Executive Matthew Gregory.
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Cobham is to take a GBP160 million charge in its 2018 results, the aerospace and defence firm said, from its dispute with US plane maker Boeing. Boeing has been withholding invoice payments for the US KC-46 tanker programme, with Boeing having made damages claims. The two have now signed an agreement, which settles all claims. Cobham will pay GBP86 million to Boeing, and also book GBP74 million of costs of further costs. However, Cobham will offset GBP37 million related to hose and drogue invoices withheld by Boeing, meaning GBP49 million will actually be sent to the aircraft maker.
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Drugmaker Indivior said the phase 3 trial for its Sublocade drug for opioid use met primary and key secondary end points. Indivior said Sublocade showed statistically significant differences in opioid abstinence.
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COMPANIES - INTERNATIONAL
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Honda Motor has been urged to rethink its "devastating" decision to close its Swindon plant in England which will jeopardise 3,500 jobs. Workers at the Wiltshire factory reacted angrily on Monday to the move at a time of turmoil for UK car manufacturing and fears over the impact of Brexit. The Japanese car giant failed to respond to requests for comment over the proposal which comes less than six months after bosses pledged support for the plant, but confirmation is expected on Tuesday. After a meeting with Honda and Business Secretary Greg Clark, Swindon's Tory MPs Justin Tomlinson and Robert Buckland said they were "disappointed and surprised" by the news, adding that job losses were not expected until 2021.
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Tuesday's Shareholder Meetings

Low & Bonar (re share placing)
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By Tom Waite; thomaslwaite@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
Wizz Air Holdings PLC 3,069.00 GBX -3.03 -
HSBC Holdings PLC 613.00 GBX -2.70
Ryanair Holdings PLC 11.44 EUR -2.26 -
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