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HSBC Q4 Pre-Tax Earnings Jump on Higher Revenues, Lower Costs
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HSBC Holdings (HSBC - Free Report) reported fourth-quarter 2021 pre-tax profit of $2.7 billion, up 92.3% from $1.4 billion recorded in the prior-year quarter.
The reported quarter’s results benefited from a rise in adjusted revenues and lower expenses. A decline in the adjusted change in expected credit losses (ECL) and other credit impairment charges was another positive.
For 2021, pre-tax profit was $18.9 billion, up significantly from $8.8 billion recorded in the prior year.
Adjusted Revenues Increase, Expenses Decline
Adjusted total quarterly revenues of $12.1 billion increased 2.5% year over year. Reported revenues were up almost 2% to $12 billion.
Adjusted operating expenses declined 8.3% year over year to $8.3 billion. A $0.6 billion of lower bank levy and good expense control efforts resulted in the decline in total costs.
Adjusted change in ECL and other credit impairment charges was $450 million, down from $1.2 billion recorded in the year-ago quarter.
Common equity Tier 1 (CET1) ratio as of Dec 31, 2021, was 15.8%, down from 15.9% recorded as of Dec 31, 2020. Leverage ratio was 5.2%, down from 5.5% at the end of December 2020.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $623 million in pre-tax profit, down 38.2% from the year-ago period. The decline was due to a fall in revenues and higher costs.
Commercial Banking: The segment reported a pre-tax profit of $1.4 billion, increasing significantly from $355 million recorded in the prior-year quarter. A rise in revenues along with lower expenses drove the increase.
Global Banking and Markets: Pre-tax profit was $387 million, down 45% from the prior-year quarter-end. Higher expenses were partially offset by a rise in revenues.
Corporate Centre: The segment reported a pre-tax profit of $293 million against a pre-tax loss of $682 million in the year-ago quarter.
Share Repurchase Update
HSBC intends to initiate a $1-billion share repurchase plan once the existing repurchase authorization of up to $2 billion is concluded.
Outlook
The company’s net interest income outlook is “significantly more positive.” Management expects mid-single-digit lending growth in 2022. However, a weaker Wealth performance in Asia is expected in the first quarter of the year.
Full-year 2022 adjusted operating expenses are projected to be in line with that reported in 2021 despite inflationary pressures. Cost to achieve spend of $3.4 billion is expected to generate over $2 billion of cost savings in the year.
In 2023, the company expects to manage growth in adjusted operating expenses of 0-2% compared with 2022. Actions taken in 2022 to help offset inflation will likely result in cost savings of $0.5 billion in 2023.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30bps of average loans in 2022, provided it retains $0.6 billion of Covid-related allowances as of the end of 2021.
If policy rates follow the current implied market consensus, management expects to achieve a return on tangible equity of 10% or more for 2023, one year before previous guidance.
The company expects to move within its target payout ratio of 40-55% of reported earnings per share in 2022.
CET1 ratio is expected to be between 14% and 14.5% by 2022-end.
Management expects mid-single-digit growth in risk-weighted assets (RWAs) in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. RWA savings are projected to be more than $120 billion by the end of 2022.
Our View
The low interest rate environment across the globe is expected to continue hurting HSBC’s revenue growth to some extent. However, the company’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.
In sync with this, the acquisition of AXA Singapore insurance assets will likely help HSBC expand business in the region.
HSBC Holdings plc Price, Consensus and EPS Surprise
Mitsubishi UFJ Financial (MUFG - Free Report) reported profits attributable to owners of parent for the third quarter of fiscal 2021 (ended Dec 31) of ¥1.07 billion ($9.42 billion), up 76.3% year over year.
Increased gross profits, higher trust fees, along with net fees, and commissions and decreased credit costs, drove the upside for MUFG. A rise in general and administrative expenses and a decline in loan and deposit balances acted as headwinds.
Notably, for fiscal 2021 (ending Mar 31, 2022), Mitsubishi expects consolidated profits attributable to owners of parent of ¥1050 billion.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2021 net profit attributable to shareholders of $1.3 billion, down 18% from the prior-year quarter’s level.
UBS’s performance was affected by higher expenses. Nonetheless, a 9% year-over-year increase in net fee and commission income, along with a 9% rise in net interest income, acted as tailwinds. Also, net credit loss release was a support.
UBS’s $1.4-billion deal to acquire Wealthfront is expected to accelerate its growth in the United States by strengthening its outreach among affluent investors and bolstering distribution competencies.
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HSBC Q4 Pre-Tax Earnings Jump on Higher Revenues, Lower Costs
HSBC Holdings (HSBC - Free Report) reported fourth-quarter 2021 pre-tax profit of $2.7 billion, up 92.3% from $1.4 billion recorded in the prior-year quarter.
The reported quarter’s results benefited from a rise in adjusted revenues and lower expenses. A decline in the adjusted change in expected credit losses (ECL) and other credit impairment charges was another positive.
For 2021, pre-tax profit was $18.9 billion, up significantly from $8.8 billion recorded in the prior year.
Adjusted Revenues Increase, Expenses Decline
Adjusted total quarterly revenues of $12.1 billion increased 2.5% year over year. Reported revenues were up almost 2% to $12 billion.
Adjusted operating expenses declined 8.3% year over year to $8.3 billion. A $0.6 billion of lower bank levy and good expense control efforts resulted in the decline in total costs.
Adjusted change in ECL and other credit impairment charges was $450 million, down from $1.2 billion recorded in the year-ago quarter.
Common equity Tier 1 (CET1) ratio as of Dec 31, 2021, was 15.8%, down from 15.9% recorded as of Dec 31, 2020. Leverage ratio was 5.2%, down from 5.5% at the end of December 2020.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $623 million in pre-tax profit, down 38.2% from the year-ago period. The decline was due to a fall in revenues and higher costs.
Commercial Banking: The segment reported a pre-tax profit of $1.4 billion, increasing significantly from $355 million recorded in the prior-year quarter. A rise in revenues along with lower expenses drove the increase.
Global Banking and Markets: Pre-tax profit was $387 million, down 45% from the prior-year quarter-end. Higher expenses were partially offset by a rise in revenues.
Corporate Centre: The segment reported a pre-tax profit of $293 million against a pre-tax loss of $682 million in the year-ago quarter.
Share Repurchase Update
HSBC intends to initiate a $1-billion share repurchase plan once the existing repurchase authorization of up to $2 billion is concluded.
Outlook
The company’s net interest income outlook is “significantly more positive.” Management expects mid-single-digit lending growth in 2022. However, a weaker Wealth performance in Asia is expected in the first quarter of the year.
Full-year 2022 adjusted operating expenses are projected to be in line with that reported in 2021 despite inflationary pressures. Cost to achieve spend of $3.4 billion is expected to generate over $2 billion of cost savings in the year.
In 2023, the company expects to manage growth in adjusted operating expenses of 0-2% compared with 2022. Actions taken in 2022 to help offset inflation will likely result in cost savings of $0.5 billion in 2023.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30bps of average loans in 2022, provided it retains $0.6 billion of Covid-related allowances as of the end of 2021.
If policy rates follow the current implied market consensus, management expects to achieve a return on tangible equity of 10% or more for 2023, one year before previous guidance.
The company expects to move within its target payout ratio of 40-55% of reported earnings per share in 2022.
CET1 ratio is expected to be between 14% and 14.5% by 2022-end.
Management expects mid-single-digit growth in risk-weighted assets (RWAs) in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. RWA savings are projected to be more than $120 billion by the end of 2022.
Our View
The low interest rate environment across the globe is expected to continue hurting HSBC’s revenue growth to some extent. However, the company’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.
In sync with this, the acquisition of AXA Singapore insurance assets will likely help HSBC expand business in the region.
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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Mitsubishi UFJ Financial (MUFG - Free Report) reported profits attributable to owners of parent for the third quarter of fiscal 2021 (ended Dec 31) of ¥1.07 billion ($9.42 billion), up 76.3% year over year.
Increased gross profits, higher trust fees, along with net fees, and commissions and decreased credit costs, drove the upside for MUFG. A rise in general and administrative expenses and a decline in loan and deposit balances acted as headwinds.
Notably, for fiscal 2021 (ending Mar 31, 2022), Mitsubishi expects consolidated profits attributable to owners of parent of ¥1050 billion.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2021 net profit attributable to shareholders of $1.3 billion, down 18% from the prior-year quarter’s level.
UBS’s performance was affected by higher expenses. Nonetheless, a 9% year-over-year increase in net fee and commission income, along with a 9% rise in net interest income, acted as tailwinds. Also, net credit loss release was a support.
UBS’s $1.4-billion deal to acquire Wealthfront is expected to accelerate its growth in the United States by strengthening its outreach among affluent investors and bolstering distribution competencies.