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HSBC Swings to Earnings in Q3 on Higher Revenues, Costs Rise

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HSBC Holdings plc HSBC reported third-quarter 2017 results wherein it recorded net profit attributable to shareholders of $3 billion, which improved from a loss of $617 million in the year-ago quarter.

Results were supported by an increase in revenues and a fall in loan impairment charges. However, as the company continued to invest in growth programs, operating expenses rose.

Revenues Rise, Expenses Increase

Adjusted total revenues of $13 billion grew 3% year over year. Rise in net interest income and other income was partially offset by a decline in net fee income and lower net trading income.

Adjusted loan impairment charges and other credit risk provisions plunged 21% from the year-ago quarter to $448 million.

Adjusted total operating expenses rose 7% from the prior-year quarter to $7.8 billion. This reflected an increase in performance-related pay and investments in business growth programs. Cost saving initiatives somewhat offset the increase.

Quarterly Performance by Business Lines (Adjusted basis)

Retail Banking and Wealth Management: The segment reported $1.7 billion in pre-tax profit, up 11% year over year. The increase was driven by higher revenues and decline in loan impairment charges, partially offset by an increase in operating expenses.

Commercial Banking: The segment reported pre-tax profit of $1.6 billion, increasing 8% from the year-ago quarter. The rise was largely driven by higher revenues.

Global Banking and Markets: Pre-tax profit for the segment was $1.5 billion, down 3% from the prior-year quarter. The decrease was primarily due to higher operating expenses and a rise in loan impairment charges.

Global Private Banking: Pre-tax profit for the segment was $54 million, down 25% from the year-ago quarter. The fall was largely owing to significantly higher loan impairment charges and lower revenues.

Corporate Centre: The segment recorded a pre-tax profit of $507 million, plunging 37% year over year. The decline reflects lower revenues and an increase in expenses.    

Improved Capital Ratios

Common equity Tier 1 ratio (transitional) as of Sep 30, 2017 was 14.6%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.7%, up from 5.4% as of Dec 31, 2016.

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 achieve 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 and Upcoming Release

Deutsche Bank AG (DB - Free Report) reported net income of €649 million ($762.6 million) in third-quarter 2017, significantly up on a year-over-year basis. Income before income taxes grew 50.7% year over year to €933 million ($1.1 billion).

Barclays PLC’s BCS third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million in the prior-year quarter.

Credit Suisse Group AG CS is scheduled to announce third-quarter 2017 results on Nov 2.

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