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HSBC Q4 Pre-Tax Profit Improves Y/Y, Revenues & Costs Decline

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HSBC Holdings (HSBC - Free Report) reported fourth-quarter 2020 pre-tax profit of $1.4 billion against a pre-tax loss of $3.9 billion recorded in the prior-year quarter. Notably, in fourth-quarter 2019, the company recorded $7.3 billion of goodwill impairment.

It recorded lower revenues in the reported quarter along with a decline in expenses. Capital ratios were decent.

Revenues & Expenses Decline

Adjusted total revenues of $11.8 billion decreased 14.2% year over year. Reported revenues were down 12.1% year over year to $11.8 billion. Both declines were primarily due to lower global interest rates.

Adjusted operating expenses declined 1.1% from the prior-year quarter to $9.1 billion.

Common equity Tier 1 (CET1) ratio as of Dec 31, 2020, was 15.9%, up from 14.7% as of Dec 31, 2019. Leverage ratio was 5.5%, up from 5.3% at the end of December 2019.

Performance by Business Lines

Wealth and Personal Banking: The segment reported $1 billion in pre-tax profit, down 16.8% year over year. The decline was due to a fall in revenues, partly offset by lower costs.

Commercial Banking: The segment reported pre-tax profit of $355 million against a pre-tax loss of $1.4 billion recorded in the prior-year quarter. The segment recorded a decline in revenues and expenses.

Global Banking and Markets: Pre-tax profit was $704 million against a pre-tax loss of $2.9 billion in the prior-year quarter end. Revenues and operating expenses declined.

Corporate Centre: The segment reported pre-tax loss of $682 million compared with a pre-tax loss of $847 million recorded in the prior-year quarter.

Guidance

HSBC continues to expect an adjusted cost base of $31 billion or less in 2022.

It expects to exceed its $100-billion gross risk-weighted asset (“RWA”) reduction target by the end of 2022.

The company no longer expects return on average tangible equity (“RoTE”) of 10-12% in 2022. It now targets a RoTE of 10% or more for the medium term.

CET1 ratio is expected to be above 14% and between 14% and 14.5% in the medium term.

The company plans to transition toward a target payout ratio of 40-55% of reported earnings per share from 2022.

Our Viewpoint

Low interest rate environment across the globe and weak loan demand are expected to continue to hamper HSBC’s revenue growth to some extent in the near term. Also, while the company’s initiatives to improve market share in the U.K. and China are likely to support financials over the long term; these efforts might lead to a rise in expenses in the near term, which might hurt the bottom line to some extent.

Nevertheless, its strong capital position, initiatives to strengthen digital capabilities and business-restructuring efforts are expected to support profitability.

HSBC Holdings plc Price, Consensus and EPS Surprise

 

HSBC Holdings plc Price, Consensus and EPS Surprise

HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote

Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Barclays (BCS - Free Report) reported fourth-quarter 2020 net income attributable to ordinary equity holders of £220 million ($290.5 million), down 67.7% from the prior-year quarter.

UBS Group AG (UBS - Free Report) reported fourth-quarter 2020 net profit attributable to shareholders of $1.71 billion, up significantly from $722 million in the prior-year quarter.

ICICI Bank’s (IBN - Free Report) third-quarter fiscal 2021 (ended Dec 31) net income was INR49.40 billion ($676 million), up 19% from INR41.46 billion ($567 million) in the prior-year quarter.

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