Troubled HSBC Poised to Benefit from Interest Rate Rise

HSBC reported mixed fourth-quarter results, but Morningstar equity analysts are maintaining their growth forecasts

Stephen Ellis 22 February, 2017 | 9:39AM

Despite mixed fourth-quarter results, HSBC (HSBA) remains one of the most exposed large global banks to changes in interest rates, and is set to significantly benefit as rates rise. The bank’s shares fell yesterday as it revealed a 60% fall in profits in the fourth quarter of 2016.

Given its lending base, it estimates that annual net interest income could increase $6.8 billion or 24%, assuming a 25-basis-point shift in yield curves at the beginning of each quarter.

The exposure is substantial given 61% of its overall lending portfolio is wholesale, largely variable, and 39% of its portfolio has a term of less than one year. This level of exposure is mainly driven by its U.S. operations as well as its Hong Kong operations that are linked to the U.S. yield curve, and the nature of trade finance, which tends to be very short term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
HSBC Holdings PLC329.45 GBX1.20

About Author

Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.

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