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HSBC to Report Q2 Earnings: What's in Store for the Stock?

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HSBC Holdings plc (HSBC - Free Report) is scheduled to announce second-quarter 2017 results on Jul 31, before the market opens.

Last quarter, this major foreign bank’s profits were down, reflecting the absence of Brazil business results, which were divested in Jul 2016. However, decrease in loan impairment charges and a modest improvement in revenues acted as tailwinds.

Looking at the price performance, HSBC stock has gained 22.1% year to date, outperforming the 15.7% rally of its industry.



So, what to expect from HSBC this earnings season? Let's see check out the factors might have affected the earnings in the quarter.

Factors at Play

Investment banking to modestly support revenues: Driven by improving market conditions, the quarter witnessed a rise in equity issuance while debt issuance was hit by higher interest rates. Per data compiled by Thomson Reuters, equity market activities led to over 22% increase in equity underwriting fees. So, HSBC is projected to witness a rise in the same.

However, the data indicates that global fees related to bond activity roughly totaled $6.5 billion during the quarter, down more than 16% year over year. So, the bank’s underwriting income is expected to fall during the quarter.

Further, global M&A activity remained lackluster during the quarter. Per the data, the total deal value of announced M&As across the globe declined. Thus, total fees earned through deal making are likely to decline as well. Likewise, advisory fees are expected to decrease for HSBC.

Rise in loan demand to support interest income: While a low interest rate environment across several major economies continue hampering interest income growth, increase in loan demand is likely to offset it to some extent. Thus, HSBC should report a modest improvement in interest income.

Costs to remain manageable: HSBC has been restructuring its operations. These efforts are expected improve the bank’s operating efficiency and trim costs. However, legal and other regulatory expenses are bound to adversely affect its bottom line.

Trading weakness to hurt revenue growth: During the second quarter, the trading environment was disappointing as markets experienced low volatility. HSBC’s trading income is likely to face fixed-income trading slump. Also, trading in equities is expected to be muted due to decreased client activities.

Rise in loan impairment charges: Loan impairment charges are expected to trend upward in the quarter as consistent global slowdown has led to deterioration in asset quality.

HSBC currently carries a Zacks Rank #3 (Hold).

Some better-ranked foreign stocks are ING Groep N.V. (ING - Free Report) , KB Financial Group Inc. (KB - Free Report) and Shinhan Financial Group Co., Ltd. (SHG - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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