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HSBC Q2 Earnings: Is the Stock Likely to Disappoint Again?
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HSBC Holdings plc (HSBC - Free Report) is slated to report second-quarter 2016 results on Aug 3, before the market opens.
Last quarter, this foreign bank recorded a dismal performance owing to the continued revenue slump and increased loan impairment charges. However, lower fines and settlement charges as well as a decline in operating expenses acted as tailwinds.
Following the dismal first-quarter performance and continued macroeconomic concerns, HSBC’s stock has been witnessing a free fall. Year-to-date, the stock has plunged over 18% on NYSE.
So, what to expect from HSBC results this earnings season? Will the company succumb to the revenue pressure and Brexit concerns? Let's see what factors might have affected the earnings in the second quarter.
Factors to Influence Q2 Results
HSBC is expected to record a pre-tax charge of roughly $585 million in the second quarter. This charge pertains to the resolution of a 14 year old class action lawsuit related to events preceding the acquisition of Household International Inc. in 2003 by the London-based bank.
Further, HSBC should continue to witness a slump in investment banking revenues in the quarter, given the significant slowdown in M&As and weakness in IPO markets. Moreover, a persistent low interest rate environment has forced the central banks of most countries to prioritize growth over inflation control. Therefore, subdued interest income growth is anticipated to hamper the bank’s top-line growth.
Additionally, loan impairment charges and other credit risk provisions are expected to trend upward as continued global slowdown may lead to deterioration in asset quality.
On Brexit concerns, a major U.K. bank, Barclays Plc (BCS - Free Report) noted during its earnings release last week that this matter is not likely to have much impact on its financials in the near-term. We believe that HSBC’s financials will not have any material impact from it either.
Also, HSBC continues to focus on its core operations, while divesting or closing the less profitable ones. This is continuously leading to improvement in efficiency ratio. Further, driven by these and other restructuring initiatives, operating expenses should witness a downward trend. Nonetheless, increased risk, compliance and related costs are likely to somewhat mitigate this downtrend.
HSBC currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked foreign banks include Banco Santander (Brasil) S.A. (BSBR - Free Report) and Sumitomo Mitsui Financial Group, Inc. (SMFG - Free Report) . Both these sport a Zacks Rank #1 (Strong Buy).
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HSBC Q2 Earnings: Is the Stock Likely to Disappoint Again?
HSBC Holdings plc (HSBC - Free Report) is slated to report second-quarter 2016 results on Aug 3, before the market opens.
Last quarter, this foreign bank recorded a dismal performance owing to the continued revenue slump and increased loan impairment charges. However, lower fines and settlement charges as well as a decline in operating expenses acted as tailwinds.
Following the dismal first-quarter performance and continued macroeconomic concerns, HSBC’s stock has been witnessing a free fall. Year-to-date, the stock has plunged over 18% on NYSE.
HSBC HOLDINGS Price
HSBC HOLDINGS Price | HSBC HOLDINGS Quote
So, what to expect from HSBC results this earnings season? Will the company succumb to the revenue pressure and Brexit concerns? Let's see what factors might have affected the earnings in the second quarter.
Factors to Influence Q2 Results
HSBC is expected to record a pre-tax charge of roughly $585 million in the second quarter. This charge pertains to the resolution of a 14 year old class action lawsuit related to events preceding the acquisition of Household International Inc. in 2003 by the London-based bank.
Further, HSBC should continue to witness a slump in investment banking revenues in the quarter, given the significant slowdown in M&As and weakness in IPO markets. Moreover, a persistent low interest rate environment has forced the central banks of most countries to prioritize growth over inflation control. Therefore, subdued interest income growth is anticipated to hamper the bank’s top-line growth.
Additionally, loan impairment charges and other credit risk provisions are expected to trend upward as continued global slowdown may lead to deterioration in asset quality.
On Brexit concerns, a major U.K. bank, Barclays Plc (BCS - Free Report) noted during its earnings release last week that this matter is not likely to have much impact on its financials in the near-term. We believe that HSBC’s financials will not have any material impact from it either.
Also, HSBC continues to focus on its core operations, while divesting or closing the less profitable ones. This is continuously leading to improvement in efficiency ratio. Further, driven by these and other restructuring initiatives, operating expenses should witness a downward trend. Nonetheless, increased risk, compliance and related costs are likely to somewhat mitigate this downtrend.
HSBC currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked foreign banks include Banco Santander (Brasil) S.A. (BSBR - Free Report) and Sumitomo Mitsui Financial Group, Inc. (SMFG - Free Report) . Both these sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>