Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

HSBC's profits more than double, but bank to raise $5-7bn fresh capital

HSBC's profits more than double, but bank to raise $5-7bn fresh capital

HSBC reported pre-tax profits more than doubled to $17.2 billion (£12.3 billion) in 2017 in CEO Stuart Gullivar’s last set off results before stepping down, but the bank said it will look to raise $5-7 billion next year to bolster its capital base.

Pre-tax profit growth was up from $7.1 billion in 2016, when the bank faced a number of restructuring costs, as well as a massive $3.2 billion impairment charge on its European private banking business.

However, the figure was still below analyst expectations of closer to $20 billion, although investors will draw some comfort from the fact the financial giant has maintained its dividend at $0.51 per share, at a cost of $10.2 billion.

Total group revenue rose from $48 billion to $51.4 billion year-on-year, while operating expenses dropped from $39.8 billion to $34.9 billion.

Outgoing CEO Gulliver (pictured) said: ‘These good results demonstrate the strength and potential of HSBC. All our global businesses grew adjusted profits and we concluded the transformation programme that we started in 2015. HSBC is simpler, stronger, and more secure than it was in 2011. It has been my great privilege to lead HSBC for the last seven years, and in handing over to John I am confident the organisation is in great hands.’

His replacement, CEO designate John Flint, added: ‘These results and the achievements of the last couple of years give us a great platform to build on. I am working with the management team and the Board to evolve our strategy and execute it at pace, and I will update shareholders on this work by our half year results. The fundamentals of HSBC will remain the same as they always have - strong funding and liquidity, strong capital, and a conservative approach to credit.’

Private banking

The Swiss arm of HSBC’s private bank became mired in a string of tax dodging accusations in 2015, prompting last year’s massive writedown. The company has set aside a further $164 million of regulatory provisions, but this is down from $344 million in 2016.

The division’s revenue overall was ‘stable’ in 2017, but the firm said it grew by 10% ‘in its target markets’ following further investment in the unit.

Global private banking pre-tax profits rose from $272 million to $296 million over the year, while retail banking and wealth management delivered $6.5 billion, up from $5.2 billion in 2016.

Market reaction

HSBC's shares were down 3.45%, or 26.2p, on the news, trading at 734.3p at 8:26am.

However, Richard Hunter, head of markets at Interactive Investor, took a more sanguine view of the bank's numbers.

'The market may have chosen to concentrate on the less pleasing elements to the numbers, but there is little denying that HSBC is showing signs of being in strong recovery mode,' he said.

'Revenues and profits were sharply higher, against fairly weak comparatives, but came in slightly shy of expectations. Similarly, the lack of further  share buybacks – for the moment hampered by the bank’s efforts to shore up capital further – were the source of some disappointment, as was a slightly softer fourth quarter.

'Meanwhile, in terms of the metrics, the return on equity, whilst vastly improved from the previous year, is still well short of HSBC’s own target of 10%.'

Nonetheless, he pointed to the bank's strong capital buffers, which will further boosted by the planned capital raise in the first half of the year. Hunter also noted that HSBC's share price is still up 7.5% over one year, against the wider FTSE 100's 0.7% fall, for context, and the shares have risen 69% over two years.  

'A banking behemoth such as HSBC will always have its detractors, but the general market view of the company as a hold is the least an investor can expect for income and stability alone,' he added.

 

 

 

 

 

 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Wealth Manager on Twitter