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HSBC Q3 Earnings: Is the Stock Likely to Disappoint Again?

BMO MTU BNS HSBC

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London-based global bank, HSBC Holdings plc (HSBC - Free Report) is slated to report third-quarter 2016 results on Nov 7, before the market opens.

Last quarter, this foreign bank had recorded a dismal performance owing to the continued revenue slump, increased loan impairment charges and a rise in legal charges. However, a decline in operating expenses acted as a tailwind.

Despite the dismal first-half 2016, performance and continued macroeconomic concerns, HSBC’s stock was up over 20% on the NYSE for the month-ended Sep 30, 2016. Nevertheless, year to date, the stock has declined more than 6%.

So, what to expect from HSBC results this earnings season?  Will the company succumb to the revenue pressure again? Let's see what factors might have affected the earnings in the third quarter.

Factors at Play

HSBC should continue to witness a slump in investment banking revenues in the quarter, given the significant slowdown in M&As and weakness in IPO markets. However, trading income should rebound in the quarter, driven by reversal in fixed income trading.

Moreover, a persistent low interest rate environment has forced the central banks to prioritize growth over inflation control. Therefore, subdued interest income growth is anticipated to hamper the bank’s top-line growth.

Additionally, loan impairment charges and other credit risk provisions are expected to trend upward as continued global slowdown may lead to deterioration in asset quality.

HSBC continues to focus on its core operations, while divesting or closing the less profitable ones. This is consistently leading to improvement in efficiency ratio. Further, supported by these and other restructuring initiatives, operating expenses should witness a downward trend. Nonetheless, increased risk, compliance and related costs are likely to somewhat mitigate this downtrend.

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

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

Among foreign banks, Mitsubishi UFJ Financial Group, Inc. (MTU - Free Report) is scheduled to announce results on Nov 14, The Bank of Nova Scotia (BNS - Free Report) on Nov 29 and Bank of Montreal (BMO - Free Report) on Dec 6.

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