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HSBC Q2 Pre-Tax Earnings Improve as Revenues Rise, Costs Fall
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HSBC Holdings (HSBC - Free Report) reported a second-quarter 2023 pre-tax profit of $8.77 billion, up 89.2% from the prior-year quarter.
Results reflected a rise in revenues on higher interest rates. Also, marginally lower expenses aided the results to some extent. However, a rise in expected credit losses and other credit impairment charges (ECL) was a headwind.
Revenues Improve, Expenses Decline Marginally
Total reported revenues were $16.71 billion, which increased 36.5% year over year. The rise was primarily driven by an increase in net interest income and other operating income.
Operating expenses declined nearly 1% year over year to $7.87 billion.
In the quarter under review, ECL was $913 million. This was up from $447 million in the prior-year quarter.
The common equity tier 1 (CET1) ratio as of Jun 30, 2023, was 14.7%, up from the 14.2% recorded as of Dec 31, 2022. The leverage ratio was 5.8%, unchanged from the end of December 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $3.32 billion in pre-tax profit, up significantly from $1.38 billion in the year-ago period. The surge was driven by growth in net interest income and other operating income.
Commercial Banking: The segment reported a pre-tax profit of $3.13 billion, up 77.1% from the $1.77 billion recorded in the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.54 billion, down 6.4%. The decline was due to higher costs.
Corporate Centre: The segment reported a pre-tax profit of $783 million against a loss before tax of $158 million recorded in the year-ago quarter.
Capital Deployment Update
HSBC announced a second interim dividend of 10 cents per share. The company intends to initiate a further share buyback of up to $2 billion, which is expected to commence shortly and complete within three months.
Outlook
For 2023, net interest income is expected above $35 billion.
HSBC targets operating expense growth of 3% for 2023, excluding the impacts of foreign currency translation differences, notable items and the effects of retranslating the 2022 results of hyperinflationary economies at constant currency. It also excludes the impact of the company’s acquisition of SVB UK and related investments internationally, which are expected to add 1% to operating expenses.
Moreover, the benefits of the severance costs of $0.2 billion incurred in the second quarter of 2023 are expected to be realized toward the end of 2023 and into 2024.
For 2023, ECL charges are expected to be 40 basis points.
Based on the path implied by the market for global policy rates, the company expects a return on tangible equity in the mid-teens for 2023 and 2024, which excludes the impacts of material acquisitions and disposals.
The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
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. Although the company’s initiatives to improve market share in Asia will support financials, these will lead to a rise in expenses. The worsening operating backdrop is another headwind.
HSBC Holdings plc Price, Consensus and EPS Surprise
Barclays (BCS - Free Report) reported a second-quarter 2023 net income attributable to ordinary equity holders of £1.33 billion ($1.66 billion), up 24% from the prior-year quarter.
BCS recorded an increase in expenses and lower revenues in the reported quarter. Also, higher credit impairment charges hurt Barclays’ results to an extent.
Deutsche Bank (DB - Free Report) reported a second-quarter 2023 profit attributable to its shareholders of €763 million ($831 million), down 27% from the year-ago quarter. The Germany-based lender reported a profit before tax of €1.41 billion ($1.53 billion), down 9% year over year.
DB’s results were largely driven by higher net revenues and a strong capital position. However, higher provisions for credit losses and a rise in operating expenses were the offsetting factors for DB.
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HSBC Q2 Pre-Tax Earnings Improve as Revenues Rise, Costs Fall
HSBC Holdings (HSBC - Free Report) reported a second-quarter 2023 pre-tax profit of $8.77 billion, up 89.2% from the prior-year quarter.
Results reflected a rise in revenues on higher interest rates. Also, marginally lower expenses aided the results to some extent. However, a rise in expected credit losses and other credit impairment charges (ECL) was a headwind.
Revenues Improve, Expenses Decline Marginally
Total reported revenues were $16.71 billion, which increased 36.5% year over year. The rise was primarily driven by an increase in net interest income and other operating income.
Operating expenses declined nearly 1% year over year to $7.87 billion.
In the quarter under review, ECL was $913 million. This was up from $447 million in the prior-year quarter.
The common equity tier 1 (CET1) ratio as of Jun 30, 2023, was 14.7%, up from the 14.2% recorded as of Dec 31, 2022. The leverage ratio was 5.8%, unchanged from the end of December 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $3.32 billion in pre-tax profit, up significantly from $1.38 billion in the year-ago period. The surge was driven by growth in net interest income and other operating income.
Commercial Banking: The segment reported a pre-tax profit of $3.13 billion, up 77.1% from the $1.77 billion recorded in the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.54 billion, down 6.4%. The decline was due to higher costs.
Corporate Centre: The segment reported a pre-tax profit of $783 million against a loss before tax of $158 million recorded in the year-ago quarter.
Capital Deployment Update
HSBC announced a second interim dividend of 10 cents per share. The company intends to initiate a further share buyback of up to $2 billion, which is expected to commence shortly and complete within three months.
Outlook
For 2023, net interest income is expected above $35 billion.
HSBC targets operating expense growth of 3% for 2023, excluding the impacts of foreign currency translation differences, notable items and the effects of retranslating the 2022 results of hyperinflationary economies at constant currency. It also excludes the impact of the company’s acquisition of SVB UK and related investments internationally, which are expected to add 1% to operating expenses.
Moreover, the benefits of the severance costs of $0.2 billion incurred in the second quarter of 2023 are expected to be realized toward the end of 2023 and into 2024.
For 2023, ECL charges are expected to be 40 basis points.
Based on the path implied by the market for global policy rates, the company expects a return on tangible equity in the mid-teens for 2023 and 2024, which excludes the impacts of material acquisitions and disposals.
The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
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. Although the company’s initiatives to improve market share in Asia will support financials, these will lead to a rise in expenses. The worsening operating backdrop is another headwind.
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 a second-quarter 2023 net income attributable to ordinary equity holders of £1.33 billion ($1.66 billion), up 24% from the prior-year quarter.
BCS recorded an increase in expenses and lower revenues in the reported quarter. Also, higher credit impairment charges hurt Barclays’ results to an extent.
Deutsche Bank (DB - Free Report) reported a second-quarter 2023 profit attributable to its shareholders of €763 million ($831 million), down 27% from the year-ago quarter. The Germany-based lender reported a profit before tax of €1.41 billion ($1.53 billion), down 9% year over year.
DB’s results were largely driven by higher net revenues and a strong capital position. However, higher provisions for credit losses and a rise in operating expenses were the offsetting factors for DB.