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HSBC's Q2 Pre-Tax Earnings Increase Y/Y, Revenues Decline

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HSBC Holdings (HSBC - Free Report) reported second-quarter 2021 pre-tax profit of $5.1 billion, up significantly from $1.1 billion recorded in the prior-year quarter.

The company’s shares on the NYSE rallied 1.5% in the pre-market trading. A full day’s trading session will provide a better picture.

Results benefited from net reserve releases. However, lower adjusted revenues and a rise in expenses were the undermining factors.

Adjusted Revenues Decline, Expenses Rise

Adjusted total revenues of $12.5 billion decreased 9.8% year over year. Reported revenues were down 3.8% to $12.6 billion.

Adjusted operating expenses rose 3.8% from the prior-year quarter to $8 billion.

Adjusted change in expected credit losses (ECL) and other credit impairment charges was a net release of $284 million against a charge of $4.2 billion recorded in the year-ago quarter.

Common equity Tier 1 (CET1) ratio as of Jun 30, 2021, was 15.6%, up from 15.0% as of Jun 30, 2020. Leverage ratio was 5.3%, unchanged from the end of June 2020.

Performance by Business Lines

Wealth and Personal Banking: The segment reported $1.8 billion in pre-tax profit, up substantially from $813 million recorded a year ago. The improvement was driven by a rise in revenues, partly offset by higher costs.

Commercial Banking: The segment reported a pre-tax profit of $1.6 billion against a pre-tax loss of $582 million in the prior-year quarter. It also recorded a rise in revenues along with higher expenses.

Global Banking and Markets: Pre-tax profit was $1.2 billion, rising 42% from the prior-year quarter end. Lower expenses were partly offset by a decline in revenues.

Corporate Centre: The segment reported a pre-tax profit of $474 million against a pre-tax loss of $8 million in the year-ago quarter.

Guidance

Excluding the benefit from a reduced bank levy, adjusted operating expenses in 2021 are projected to be in line with that reported in 2020.

HSBC continues to expect an adjusted cost base of $31 billion or less for 2022. Also, the company projects cost savings of $5-$5.5 billion by 2022.

The company projects mid-single-digit growth in customer lending for 2021.

It expects to exceed its $100-billion gross risk-weighted asset reduction target by the end of 2022. As the company progresses with the target, it expects low-single-digit percentage growth in risk-weighted assets in 2021.

HSBC targets a return on tangible equity of 10% or more for the medium term.

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

The company expects to move within its target payout ratio of 40-55% of reported earnings per share in 2021.

Based on the current consensus economic forecast trajectory, management expects ECL charges for 2021 to be below the medium-term range of 30-40 basis points of average loans.

Our View

The low interest rate environment across the globe and weak loan demand are expected to continue hurting HSBC’s revenue growth to some extent. The company’s initiatives to improve market share in the U.K. and China are likely to support financials. However, the efforts might lead to a continued rise in expenses, which will likely hurt the bottom line.

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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

UBS Group AG (UBS - Free Report) reported second-quarter 2021 net profit attributable to shareholders of $2 billion, up 63% from the prior-year quarter. The company’s performance was supported by a 29% year-over-year increase in net fee and commission income along with a 17% rise in net interest income. Net credit loss release was another tailwind.

ICICI Bank’s (IBN - Free Report) first-quarter fiscal 2022 (ended Jun 30, 2021) net income was INR46.16 billion ($621 million), up 78% from the prior-year quarter. Results were driven by a rise in net interest income, non-interest income, and growth in loans and deposits. Provisions declined in the quarter, mainly driven by reserve releases.

Barclays (BCS - Free Report) reported second-quarter 2021 net income attributable to ordinary equity holders of £2.11 billion ($2.95 billion), up significantly from the prior-year quarter. Results were aided by a rise in revenues, partly offset by higher operating expenses. The company recorded credit impairment releases, which was a major tailwind.


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