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HSBC Q1 Pre-Tax Earnings Improve as Revenues Rise, Costs Fall
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HSBC Holdings (HSBC - Free Report) reported a first-quarter 2023 pre-tax profit of $12.89 billion, up significantly from the prior-year quarter. This included a $2.1-billion reversal of an impairment relating to the planned sale of the retail banking operations in France (because the completion of the transaction is less certain) and a provisional gain of $1.5 billion on the acquisition of Silicon Valley Bank UK Limited.
Results reflected a rise in revenues on higher interest rates. Also, lower expenses aided the results to some extent. A decline in expected credit losses and other credit impairment charges (ECL) was another tailwind.
Revenues Improve, Expenses Decline
Total reported revenues were $20.17 billion, which increased 63.9% year over year. The rise was driven by an increase in net interest income and other operating income.
Operating expenses declined 7.2% year over year to $7.59 billion.
In the quarter under review, ECL was $432 million. This was down from $639 million in the prior-year quarter.
The common equity tier 1 (CET1) ratio as of Mar 31, 2023, was 14.7%, up from 14.1% recorded as of Mar 31, 2022. The leverage ratio was 5.8%, up from 5.7% at the end of March 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $5.27 billion in pre-tax profit, up significantly from $1.16 billion in the year-ago period. The surge was driven by growth in net interest income and lower expenses.
Commercial Banking: The segment reported a pre-tax profit of $4.81 billion, up significantly from the $1.79 billion recorded in the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $2.04 billion, jumping 73.3%. The rise was primarily aided by higher revenues and lower costs.
Corporate Centre: The segment reported a pre-tax profit of $763 million, up from the $12 million recorded in the year-ago quarter.
Outlook
Based on the current market consensus for global central bank rates, the company expects a net interest income of at least $36 billion for 2023.
Adjusted cost growth of 3% is expected in 2023. The acquisition of SVB UK and the related investments internationally is expected to add 1% to operating expenses. HSBC intends to maintain strict cost discipline thereafter.
For 2023, ECL charges are expected to be 40 basis points.
Management expects a return on tangible equity of 12% or more from 2023 onward.
The CET1 ratio is expected between 14% and 14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
Our View
HSBC’s strong capital position, initiatives to strengthen digital capabilities, extensive network and efforts to improve operating efficiency through business-restructuring plans are expected to support financials. Exiting from the U.S. and French retail banking operations will help HSBC focus on Asia.
HSBC Holdings plc Price, Consensus and EPS Surprise
UBS Group AG (UBS - Free Report) reported first-quarter 2023 net profit attributable to shareholders of $1.03 billion, down 51.8% from the prior-year quarter.
UBS’ quarterly performance was worrisome, as there were increases in expenses. Lower revenues acted as another major headwind.
Nevertheless, the performance of the Personal & Corporate Banking division was impressive. UBS’ Asset Management arm, Group Functions, The Investment Bank and Global Wealth Management segments did not perform well.
ICICI Bank (IBN - Free Report) released fourth-quarter fiscal 2023 (ended Mar 31) results. Net income was INR91.22 billion ($1.1 billion), up 30% from the prior-year quarter.
IBN’s results were driven by a rise in net interest income and non-interest income, higher rates, and growth in loans and deposits. However, provisions increased in the quarter. Also, higher operating expenses posed as the undermining factor for IBN.
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HSBC Q1 Pre-Tax Earnings Improve as Revenues Rise, Costs Fall
HSBC Holdings (HSBC - Free Report) reported a first-quarter 2023 pre-tax profit of $12.89 billion, up significantly from the prior-year quarter. This included a $2.1-billion reversal of an impairment relating to the planned sale of the retail banking operations in France (because the completion of the transaction is less certain) and a provisional gain of $1.5 billion on the acquisition of Silicon Valley Bank UK Limited.
Results reflected a rise in revenues on higher interest rates. Also, lower expenses aided the results to some extent. A decline in expected credit losses and other credit impairment charges (ECL) was another tailwind.
Revenues Improve, Expenses Decline
Total reported revenues were $20.17 billion, which increased 63.9% year over year. The rise was driven by an increase in net interest income and other operating income.
Operating expenses declined 7.2% year over year to $7.59 billion.
In the quarter under review, ECL was $432 million. This was down from $639 million in the prior-year quarter.
The common equity tier 1 (CET1) ratio as of Mar 31, 2023, was 14.7%, up from 14.1% recorded as of Mar 31, 2022. The leverage ratio was 5.8%, up from 5.7% at the end of March 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $5.27 billion in pre-tax profit, up significantly from $1.16 billion in the year-ago period. The surge was driven by growth in net interest income and lower expenses.
Commercial Banking: The segment reported a pre-tax profit of $4.81 billion, up significantly from the $1.79 billion recorded in the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $2.04 billion, jumping 73.3%. The rise was primarily aided by higher revenues and lower costs.
Corporate Centre: The segment reported a pre-tax profit of $763 million, up from the $12 million recorded in the year-ago quarter.
Outlook
Based on the current market consensus for global central bank rates, the company expects a net interest income of at least $36 billion for 2023.
Adjusted cost growth of 3% is expected in 2023. The acquisition of SVB UK and the related investments internationally is expected to add 1% to operating expenses. HSBC intends to maintain strict cost discipline thereafter.
For 2023, ECL charges are expected to be 40 basis points.
Management expects a return on tangible equity of 12% or more from 2023 onward.
The CET1 ratio is expected between 14% and 14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
Our View
HSBC’s strong capital position, initiatives to strengthen digital capabilities, extensive network and efforts to improve operating efficiency through business-restructuring plans are expected to support financials. Exiting from the U.S. and French retail banking operations will help HSBC focus on Asia.
HSBC Holdings plc Price, Consensus and EPS Surprise
HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote
Currently, HSBC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Foreign Banks
UBS Group AG (UBS - Free Report) reported first-quarter 2023 net profit attributable to shareholders of $1.03 billion, down 51.8% from the prior-year quarter.
UBS’ quarterly performance was worrisome, as there were increases in expenses. Lower revenues acted as another major headwind.
Nevertheless, the performance of the Personal & Corporate Banking division was impressive. UBS’ Asset Management arm, Group Functions, The Investment Bank and Global Wealth Management segments did not perform well.
ICICI Bank (IBN - Free Report) released fourth-quarter fiscal 2023 (ended Mar 31) results. Net income was INR91.22 billion ($1.1 billion), up 30% from the prior-year quarter.
IBN’s results were driven by a rise in net interest income and non-interest income, higher rates, and growth in loans and deposits. However, provisions increased in the quarter. Also, higher operating expenses posed as the undermining factor for IBN.