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Will HSBC Report Dismal Earnings on Subdued Revenue Growth?

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HSBC Holdings plc (HSBC - Free Report) is slated to report second-quarter 2014 results on Monday, Aug 4.

In the preceding quarter, this foreign bank delivered disappointing earnings, declining 18% year-over-year, mainly due to a decrease in revenues. However, this was partially offset by a fall in operating expenses.

Will HSBC be able to reverse the trend this time or will it once again succumb to the tough industry backdrop? Let's see what factors might have influenced the earnings.

Factors Influencing Q2 Results

Business restructuring in order to withstand any further crises remained the key trend among the non-U.S. banks this quarter, with HSBC being one of them. The company’s strategy of focusing on its core operations through selling or closing less profitable ones, remain the chief cost-controlling factor. Operating expenses, in our opinion, will show a downward trend this quarter as well.

Nevertheless, the low interest rate environment persisting during the quarter resulted in the central banks of most countries prioritizing growth over inflation control. Hence, subdued interest income growth should dampen HSBC’s top line.

Additionally, slump in trading income is expected to hamper top-line improvement with continued low level of client activity in the second quarter. Further, loan growth is expected to remain muted, which will in turn, adversely impact HSBC’s revenues.

Also, HSBC has been embroiled in several lawsuits and investigations. As a result, the company might have retained additional reserve for litigation expenses, which would hurt the bottom line to some extent.

HSBC currently carries a Zacks Rank #4 (Sell).

Other foreign banks that are expected to release results in the coming days include Itau Unibanco Holding S.A. (ITUB - Free Report) , Royal Bank of Canada (RY - Free Report) and The Toronto-Dominion Bank (TD - Free Report) . Itau Unibanco will report second-quarter results on Aug 5, while Royal Bank of Canada and Toronto-Dominion are scheduled to report third-quarter fiscal 2014 (ended Jul 31) results on Aug 22 and Aug 28, respectively.

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