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HSBC Holdings (HSBC - Free Report) reported a second-quarter 2022 pre-tax profit of $5 billion, down 1% from the prior-year quarter.
Results reflected a rise in adjusted revenues. Adjusted expenses declined marginally from the year-ago quarter. The expected credit losses and other credit impairment charges (ECL) were a net charge in the quarter under review against a release in the prior-year quarter, which was a headwind.
Adjusted total revenues of $13.1 billion increased 11.6% year over year. Reported revenues were up 1.6% year over year to $12.8 billion.
Adjusted operating expenses declined marginally year over year to $7.5 billion. The impact of the company’s cost-saving initiatives and continued cost discipline mitigated increased investment and inflation.
In the quarter under review, reported ECL was a charge of $0.4 billion against a net release of $0.3 billion in the prior-year quarter.
Common equity Tier 1 (CET1) ratio as of Jun 30, 2022, was 13.6%, down from 15.6% recorded as of Jun 30, 2021. Leverage ratio was 5.5%, up from 5.3% at the end of June 2021.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $1.8 billion in pre-tax profit, down 1.9% from the year-ago period. The decline was due to a fall in revenues.
Commercial Banking: The segment reported a pre-tax profit of $1.7 billion, up 10.5% from the prior-year quarter. A fall in expenses and higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.7 billion, up 36.9% from the prior-year quarter-end. The rise was primarily aided by higher revenues.
Corporate Centre: The segment reported a pre-tax loss of $0.2 billion against a pre-tax profit of $0.5 billion in the year-ago quarter.
Dividend Update
HSBC’s board of directors approved an interim cash dividend of 9 cents per share for the first half of 2022.
Outlook
Based on the current market consensus for global central bank rates and HSBC’s continued mid-single-digit percentage lending growth expectation for 2022, the company expects net interest income of at least $31 billion for 2022 and at least $37 billion for 2023.
Adjusted operating expenses for 2022 are projected to be in line with that reported in 2021 despite inflationary pressures. For 2023, year-over-year adjusted cost growth of 2% is expected. HSBC intends to maintain strict cost discipline thereafter.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30 bps of average loans in 2022. Management expects to achieve a return on tangible equity of 12% or more from 2023 onward.
The CET1 ratio is expected to be between 14% and 14.5% in the first half of 2023. The planned disposal of HSBC’s French retail operations is expected to adversely impact the CET1 ratio by 30 bps in the second half of 2022.
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.
HSBC expects a dividend payout ratio of 50% for 2023 and 2024. It also intends to revert to paying quarterly dividends in 2023, although the quarterly dividends for the first three quarters are likely to be initially reinstated at a lower level than the historical quarterly dividend of 10 cents per share.
Our View
HSBC’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.
HSBC Holdings plc Price, Consensus and EPS Surprise
ICICI Bank’s (IBN - Free Report) first-quarter fiscal 2023 (ended Jun 30, 2022) net income was INR69.05 billion ($874 million), jumping 50% from the prior-year quarter.
ICICI’s results were driven by a rise in net interest income, non-interest income and growth in loans and deposits. Provisions declined in the quarter. However, higher operating expenses posed a headwind.
Barclays (BCS - Free Report) reported second-quarter 2022 net income attributable to ordinary equity holders of £1.07 billion ($1.35 billion), down 47.7% from the prior-year quarter.
Barclays’ results were hurt by a rise in expenses. In the reported quarter, BCS recorded credit impairment charges against releases in the prior-year quarter. Nevertheless, a rise in revenues aided the results to some extent.
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HSBC Q2 Pre-Tax Earnings Decline Y/Y Despite Revenue Growth
HSBC Holdings (HSBC - Free Report) reported a second-quarter 2022 pre-tax profit of $5 billion, down 1% from the prior-year quarter.
Results reflected a rise in adjusted revenues. Adjusted expenses declined marginally from the year-ago quarter. The expected credit losses and other credit impairment charges (ECL) were a net charge in the quarter under review against a release in the prior-year quarter, which was a headwind.
Adjusted Revenues Rise, Expenses Decline Marginally
Adjusted total revenues of $13.1 billion increased 11.6% year over year. Reported revenues were up 1.6% year over year to $12.8 billion.
Adjusted operating expenses declined marginally year over year to $7.5 billion. The impact of the company’s cost-saving initiatives and continued cost discipline mitigated increased investment and inflation.
In the quarter under review, reported ECL was a charge of $0.4 billion against a net release of $0.3 billion in the prior-year quarter.
Common equity Tier 1 (CET1) ratio as of Jun 30, 2022, was 13.6%, down from 15.6% recorded as of Jun 30, 2021. Leverage ratio was 5.5%, up from 5.3% at the end of June 2021.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $1.8 billion in pre-tax profit, down 1.9% from the year-ago period. The decline was due to a fall in revenues.
Commercial Banking: The segment reported a pre-tax profit of $1.7 billion, up 10.5% from the prior-year quarter. A fall in expenses and higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.7 billion, up 36.9% from the prior-year quarter-end. The rise was primarily aided by higher revenues.
Corporate Centre: The segment reported a pre-tax loss of $0.2 billion against a pre-tax profit of $0.5 billion in the year-ago quarter.
Dividend Update
HSBC’s board of directors approved an interim cash dividend of 9 cents per share for the first half of 2022.
Outlook
Based on the current market consensus for global central bank rates and HSBC’s continued mid-single-digit percentage lending growth expectation for 2022, the company expects net interest income of at least $31 billion for 2022 and at least $37 billion for 2023.
Adjusted operating expenses for 2022 are projected to be in line with that reported in 2021 despite inflationary pressures. For 2023, year-over-year adjusted cost growth of 2% is expected. HSBC intends to maintain strict cost discipline thereafter.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30 bps of average loans in 2022.
Management expects to achieve a return on tangible equity of 12% or more from 2023 onward.
The CET1 ratio is expected to be between 14% and 14.5% in the first half of 2023. The planned disposal of HSBC’s French retail operations is expected to adversely impact the CET1 ratio by 30 bps in the second half of 2022.
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.
HSBC expects a dividend payout ratio of 50% for 2023 and 2024. It also intends to revert to paying quarterly dividends in 2023, although the quarterly dividends for the first three quarters are likely to be initially reinstated at a lower level than the historical quarterly dividend of 10 cents per share.
Our View
HSBC’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.
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
ICICI Bank’s (IBN - Free Report) first-quarter fiscal 2023 (ended Jun 30, 2022) net income was INR69.05 billion ($874 million), jumping 50% from the prior-year quarter.
ICICI’s results were driven by a rise in net interest income, non-interest income and growth in loans and deposits. Provisions declined in the quarter. However, higher operating expenses posed a headwind.
Barclays (BCS - Free Report) reported second-quarter 2022 net income attributable to ordinary equity holders of £1.07 billion ($1.35 billion), down 47.7% from the prior-year quarter.
Barclays’ results were hurt by a rise in expenses. In the reported quarter, BCS recorded credit impairment charges against releases in the prior-year quarter. Nevertheless, a rise in revenues aided the results to some extent.