Yahoo Finance HSBC Q1 Pre-Tax Earnings Decline as Expenses Increase Y/Y
HSBC Holdings HSBC reported a first-quarter 2024 pre-tax profit of $12.7 billion, down 1.8% from the prior-year quarter. The reported quarter included a $4.8-billion gain following the completion of the disposal of the banking business in Canada, partly offset by a $1.1-billion impairment following the classification of its business in Argentina as held for sale.
Results reflected higher expenses, and an increase in expected credit losses and other credit impairment charges (ECL). However, a rise in revenues was a positive.
Revenues Improve, Expenses Rise
Total revenues were $20.8 billion, up 2.9% year over year. The rise was primarily driven by an increase in net fee income.
Operating expenses increased 7.4% year over year to $8.15 billion. The rise primarily resulted from continued investment in technology, the impacts of inflation and a higher performance-related pay accrual, which reflected a change in the expected quarterly phasing of the performance-related pay pool relative to the first quarter of 2023.
In the quarter under review, ECL was $720 million, up 66.7% year over year.
The common equity tier 1 (CET1) ratio as of Mar 31, 2024, was 15.2%, up from 14.7% as of Mar 31, 2023. The leverage ratio was 5.7% compared with 5.8% at the end of March 2023.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $3.18 billion in pre-tax profit, down 39.7% from the year-ago period. The plunge was due to an increase in ECL charges.
Commercial Banking: The segment reported a pre-tax profit of $3.28 billion, down 31.8% from the year-ago quarter. Lower revenues, along with higher expenses and ECL charges, led to the decline.
Global Banking and Markets: Pre-tax profit was $2.03 billion, which declined marginally year over year.
Corporate Centre: The segment reported a pre-tax profit of $4.16 billion compared with $763 million in the year-ago quarter.
Capital Deployment Update
HSBC’s board of directors approved a first interim dividend of 10 cents per share.
Following the completion of the sale of its banking business in Canada, the board approved a special dividend of 21 cents per share, payable June 2024, along with the first interim dividend.
The company intends to initiate a share buyback of up to $3 billion, which will likely have a 0.4-percentage-point impact on the CET1 capital ratio.
Outlook
For 2024, management expects banking net interest income to be at least $41 billion.
The company is cautious about loan growth in the first half of 2024. However, it projects customer lending growth in the mid-single digits over the medium to long term.
HSBC targets operating expense growth of 5% for 2024. This includes an increase in staff compensation, higher technology spends, and investment for growth and efficiency, partly offset by cost savings actions taken during 2023.
For 2024, ECL charges, as a percentage of average gross loans, are expected to be 40 basis points (bps). The company expects ECL charges to normalize and be 30-40 bps of average loans over the medium to long term.
Based on the path implied by the market for global policy rates, HSBC expects a return on average tangible equity in the mid-teens for 2024, which excludes the impacts of notable items.
The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.
HSBC expects a dividend payout ratio of 50% for 2024.
Our View
HSBC’s strong capital position, initiatives to strengthen digital capabilities, extensive network and efforts to improve operating efficiency through business-restructuring plans are expected to support financials. Although the company’s initiatives to improve market share in Asia will support financials, these will lead to a rise in expenses.
HSBC Holdings plc Price, Consensus and EPS Surprise
HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote
Currently, 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
Deutsche Bank DB reported a first-quarter 2024 profit attributable to its shareholders of €1.3 billion ($1.41 billion), up 10.1% year over year. The Germany-based lender reported a profit before tax of €2 billion ($2.17 billion), up 10% year over year.
DB’s results were positively impacted by higher net revenues and lower expenses. However, higher provision for credit losses was an offsetting factor.
Barclays BCS reported first-quarter 2024 net income attributable to ordinary equity holders of £1.55 billion ($1.97 billion), down 13% year over year.
BCS recorded lower revenues in the quarter, which was a negative. However, a decline in operating expenses, along with lower credit impairment charges, aided the results to some extent.
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