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HSBC Q2 Earnings Up on Streamlining, To Buy Back $2B Shares

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HSBC Holdings plc (HSBC - Free Report) reported second-quarter 2017 results. The company recorded net profit attributable to shareholders of $4 billion, up 55% from the year-ago quarter.

In pre-market trading on NYSE, shares of HSBC rose nearly 2.5%. Stabilizing top-line growth and announcement of $2 billion share repurchase plan seems to have cheered investors. Notably, the price reaction during the full trading session will provide a better idea about how investors accepted the results.

Results were supported by stable revenues and a fall in loan impairment charges. Also, driven by steady success in its cost-saving initiatives, operating expenses fell marginally.

Stable Revenues, Lower Costs Support Results

Adjusted total revenue of $13.2 billion remained relatively stable year over year. Rise in other income was offset by a decline in net fee income, net interest income and lower net trading income.

Adjusted loan impairment charges and other credit risk provisions plunged 35% from the year-ago quarter to $427 million.

Adjusted total operating expenses dipped 1% from the prior-year quarter to $7.4 billion. Cost saving initiatives primarily led to a fall in expenses.

Quarterly Performance by Business Lines

Retail Banking and Wealth Management: The segment reported $1.6 billion in pre-tax profit, up 4% year over year. The increase was driven by a decline in operating expenses and loan impairment charges, partially offset by a fall in revenues.

Commercial Banking: The segment reported pre-tax profit of $1.6 billion, marginally lower from the year-ago quarter. The fall was largely due to a decrease in revenues.

Global Banking and Markets: Pre-tax profit for the segment was $1.8 billion, jumping 48% from the prior-year quarter. The increase was primarily attributable to a decrease in operating expenses and lower loan impairment charges.

Global Private Banking: Pre-tax profit for the segment was $79 million as against pre-tax loss of $698 million in the year-ago quarter. The improvement was largely driven by the absence of loan impairment charges and significantly lower expenses.

Corporate Centre: The segment recorded a pre-tax profit of $201 million against pre-tax loss of $64 million in the year-ago period. The improvement reflects lower costs and a fall in loan impairment charges.

Improved Capital Ratios

Common equity Tier 1 ratio (transitional) as of Jun 30, 2017 was 14.7%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.7%, up from 5.4% as of Dec 31, 2016.

Share Repurchase Update

Following the impressive first-half 2017 results, HSBC announced a share repurchase plan. The program authorizes $2 billion worth of share buyback to be completed by the end of this year.

Our Viewpoint

By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency. Further, the company remains on track to exceed its cost savings target. However, weak European and Chinese economies, low loan demand and litigation expenses will continue to limit the bank’s growth in the near term.

HSBC Holdings PLC Price, Consensus and EPS Surprise


HSBC Holdings PLC Price, Consensus and EPS Surprise | HSBC Holdings PLC Quote

HSBC currently 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

Deutsche Bank AG (DB - Free Report) reported net income of €466 million ($512.4 million) in second-quarter 2017, significantly up on a year-over-year basis. Income before income taxes more than doubled to €822 million ($903.9 million) on a year-over-year basis.

ICICI Bank Ltd.’s (IBN - Free Report) net profit in the first quarter fiscal 2018 (ended Jun 30) declined 8% year over year to INR20.49 billion ($317 million). Results were adversely impacted by lower non-interest income, a rise in expenses and higher provisions.

Barclays PLC’s (BCS - Free Report) second-quarter 2017 net loss attributable to ordinary equity holders was £1.40 billion ($1.79 billion), mainly reflecting losses incurred from the disposal of the Africa unit. Notably, in the prior-year quarter, net profit attributable to ordinary equity holders was £677 million.

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