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HSBC Incurs Q4 Loss as Costs Rise, Records $1.3B Tax Charge
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HSBC Holdings plc (HSBC - Free Report) reported fourth-quarter 2017 results wherein it incurred net loss attributable to shareholders of $274 million, which improved from a loss of $4.4 billion in the year-ago quarter. Results included an one-time charge of $1.3 billion related to the U.S. tax reforms and several other non-recurring items.
Pre-tax income in the quarter was $2.3 billion, improving from pre-tax loss of $3.4 billion in the prior-year quarter.
Results were supported by an increase in revenues. However, as the company continued to invest in growth programs, operating expenses rose. Also, a rise in loan impairment charges acted as a headwind.
For 2017, net income attributable to shareholders was $9.7 billion, a significant rise from $1.3 billion recorded last year. Also, pre-tax income of $17.2 billion was up substantially from $7.1 billion in 2016.
Revenues Rise, Expenses Increase
Adjusted total revenues of $12.4 billion grew 13% year over year. Increase in all revenue components supported the growth.
Adjusted loan impairment charges and other credit risk provisions jumped 41% from the year-ago quarter to $658 million.
Adjusted total operating expenses rose 4% from the prior-year quarter to $8.8 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
Retail Banking and Wealth Management: The segment reported $1.1 billion in pre-tax profit, up 15% year over year. The increase was driven by higher revenues and a decline in loan impairment charges, partially offset by rise in operating expenses.
Commercial Banking: The segment reported pre-tax profit of $1.6 billion, increasing 14% from the year-ago quarter. The rise was largely driven by higher revenues.
Global Banking and Markets: Pre-tax profit for the segment of $558 million plunged 54% from the prior-year quarter. The decrease was primarily due to lower revenues and a rise in loan impairment charges.
Global Private Banking: Pre-tax loss for the segment was $91 million compared with loss of $2.8 billion in the year-ago quarter. The significant improvement was largely driven by higher revenues and a fall in expenses.
Corporate Centre: The segment recorded a pre-tax loss of $856 million compared with loss of $4.2 billion in the prior-year quarter. Rise in top line and lower expenses supported the segment results.
Improved Capital Ratios
Common equity Tier 1 ratio (transitional) as of Dec 31, 2017 was 14.5%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.6%, up from 5.4% as of Dec 31, 2016.
Moreover, HSBC intends to issue additional $5-$7 billion of Tier 1 capital in the first half of 2018.
Our Viewpoint
By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency. Further, the company achieved annualized run-rate savings of $6.1 billion since 2015. 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
Performance of Other Foreign Banks and an Upcoming Release
Deutsche Bank AG (DB - Free Report) incurred net loss of €2.2 billion ($2.6 billion) in fourth-quarter 2017 compared with net loss of €1.9 billion ($2.3 billion) in the year-ago quarter. The results were affected by non-cash charge of €1.4 billion resulting from a valuation adjustment on its deferred tax assets due to the tax reform.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2017 net profit attributable to shareholders of CHF 955 million ($967.7 million) on an adjusted basis, up 25.2% from the prior-year quarter. Including deferred tax expenses, net loss attributable to shareholders came in at CHF 2.2 billion ($2.23 billion) against net income of $636 million recorded in the prior-year quarter.
Barclays (BCS - Free Report) is scheduled to announce fourth-quarter 2017 results on Feb 22.
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HSBC Incurs Q4 Loss as Costs Rise, Records $1.3B Tax Charge
HSBC Holdings plc (HSBC - Free Report) reported fourth-quarter 2017 results wherein it incurred net loss attributable to shareholders of $274 million, which improved from a loss of $4.4 billion in the year-ago quarter. Results included an one-time charge of $1.3 billion related to the U.S. tax reforms and several other non-recurring items.
Pre-tax income in the quarter was $2.3 billion, improving from pre-tax loss of $3.4 billion in the prior-year quarter.
Results were supported by an increase in revenues. However, as the company continued to invest in growth programs, operating expenses rose. Also, a rise in loan impairment charges acted as a headwind.
For 2017, net income attributable to shareholders was $9.7 billion, a significant rise from $1.3 billion recorded last year. Also, pre-tax income of $17.2 billion was up substantially from $7.1 billion in 2016.
Revenues Rise, Expenses Increase
Adjusted total revenues of $12.4 billion grew 13% year over year. Increase in all revenue components supported the growth.
Adjusted loan impairment charges and other credit risk provisions jumped 41% from the year-ago quarter to $658 million.
Adjusted total operating expenses rose 4% from the prior-year quarter to $8.8 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
Retail Banking and Wealth Management: The segment reported $1.1 billion in pre-tax profit, up 15% year over year. The increase was driven by higher revenues and a decline in loan impairment charges, partially offset by rise in operating expenses.
Commercial Banking: The segment reported pre-tax profit of $1.6 billion, increasing 14% from the year-ago quarter. The rise was largely driven by higher revenues.
Global Banking and Markets: Pre-tax profit for the segment of $558 million plunged 54% from the prior-year quarter. The decrease was primarily due to lower revenues and a rise in loan impairment charges.
Global Private Banking: Pre-tax loss for the segment was $91 million compared with loss of $2.8 billion in the year-ago quarter. The significant improvement was largely driven by higher revenues and a fall in expenses.
Corporate Centre: The segment recorded a pre-tax loss of $856 million compared with loss of $4.2 billion in the prior-year quarter. Rise in top line and lower expenses supported the segment results.
Improved Capital Ratios
Common equity Tier 1 ratio (transitional) as of Dec 31, 2017 was 14.5%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.6%, up from 5.4% as of Dec 31, 2016.
Moreover, HSBC intends to issue additional $5-$7 billion of Tier 1 capital in the first half of 2018.
Our Viewpoint
By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency. Further, the company achieved annualized run-rate savings of $6.1 billion since 2015. 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 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 an Upcoming Release
Deutsche Bank AG (DB - Free Report) incurred net loss of €2.2 billion ($2.6 billion) in fourth-quarter 2017 compared with net loss of €1.9 billion ($2.3 billion) in the year-ago quarter. The results were affected by non-cash charge of €1.4 billion resulting from a valuation adjustment on its deferred tax assets due to the tax reform.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2017 net profit attributable to shareholders of CHF 955 million ($967.7 million) on an adjusted basis, up 25.2% from the prior-year quarter. Including deferred tax expenses, net loss attributable to shareholders came in at CHF 2.2 billion ($2.23 billion) against net income of $636 million recorded in the prior-year quarter.
Barclays (BCS - Free Report) is scheduled to announce fourth-quarter 2017 results on Feb 22.
Can Hackers Put Money INTO Your Portfolio?
Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.
Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.
Download the new report now>>