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Can Investment Banking Performance Aid HSBC Q2 Earnings?

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HSBC Holdings (HSBC - Free Report) is scheduled to announce second-quarter 2018 results on Aug 6, before the market opens. Decent investment banking performance is likely to marginally aid the bank’s revenues in the quarter under review. However, a persistent low rate environment and sequential decline in volatility might weigh on its financials.

In the last reported quarter, HSBC witnessed an increase in operating expenses, mainly due to continued investments in growth programs. On the other hand, higher revenues and a decline in loan impairment charges acted as tailwinds.

Looking at the price performance, HSBC stock has lost 9.8% on the NYSE so far this year compared with 9.5% decline of the industry it belongs to.

Will HSBC stock be able to rebound post second-quarter earnings release? It majorly depends on whether the firm is able to impress the market with its results.

Factors to Influence Q2 Results

Investment Banking to Marginally Support Revenues: Debt underwriting fees are expected to decline in the second quarter because rising rates are likely to have slowed down corporates’ involvement in debt underwriting activities.

However, equity issuances, globally, are expected to get a boost from IPOs and follow-on offerings. Thus, the related fees are anticipated to either remain stable or improve marginally for HSBC. Moreover, global M&A activities, in terms of deals closed, represent a strong second quarter. Thus, potential rise in fees from increasing M&As will likely lead to slight rise in advisory revenues for the company.

Muted Growth in Trading Revenues: After an impressive first quarter, in terms of trading activities, volatility returned to normalized levels during the second quarter. Though the April-June quarter witnessed some uncertainty, mainly related to the U.S.-China trade war and some other geopolitical tensions, it was insufficient to aid strong trading. Thus, the company’s trading revenues are not expected to witness much improvement during the quarter under review.

Loan Growth to Support Interest Income: While a low interest rate environment across several major economies continue hampering interest income growth, a decent increase in loan demand is likely to offset it to some extent.

Costs to not Lend Much Support: HSBC has been restructuring its operations. These efforts are expected to improve the bank’s operating efficiency and trim costs. However, as the company now intends to focus on growing market share in the U.K. and China, as well as strengthen its digital capabilities globally, operating expenses might increase slightly in the second quarter. Furthermore, legal and other regulatory expenses are bound to adversely affect its bottom line.

HSBC currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Foreign Banks

Canadian Imperial Bank of Commerce (CM - Free Report) , Bank Of Montreal (BMO - Free Report) and The Toronto-Dominion Bank (TD - Free Report) are expected to report results on Aug 23, Aug 28 and Aug 30, respectively.

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