First half pre-tax profit fell $1.7bn to $9.2bn, as the group recognised a $1.1bn charge for expected credit losses and impairments, reflecting a weaker economic outlook. On an underlying basis, revenue rose 4% to $25.7 bn, reflecting the benefit of higher interest rates and a strong performance from Global Foreign Exchange in Global Banking and Markets.
HSBC said it plans to pay out around 50% of its earnings as dividends for 2023 and 2024, and aims to "restore the dividend to pre-Covid-19 levels as soon as possible", with quarterly dividends being reinstated in 2023.
An interim dividend of $0.09 per share was announced.
The shares rose 5.9% following the announcement.
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Our view
HSBC has given the market reason to celebrate at the half year mark. Profits came in ahead of expectations as revenues were better than expected, and the group put aside less-than-feared for a weakening economic outlook.
Put together and it means the banking giant can increase its guidance for shareholder distributions. With pressure from activist investors causing HSBC to proclaim dividends will be back to pre-pandemic levels as soon as possible.
The benefits of HSBC's diverse business model are also still very much intact. The group has a large investment banking arm, providing some relief in tougher times. This division makes a substantial chunk of revenue through trading and banking fees when companies raise money - so is less influenced by global interest rates. And at the Net Interest Income level, rising interest rates are helping the overall picture. Expectations for further rate increases have fed into a positive revenue outlook for this year.
HSBC's capital position, though weakened, is still impressive too. The giant has a mammoth balance sheet, with reams of surplus deposits.
There are some unhelpful trends though. Wider macro-economic conditions mean HSBC has had to put aside over $1bn against potential defaults. That's partly owing to an uncertain economic outlook. The group's also facing the effects of uncertainty in the Chinese commercial real estate sector, as well as exposure to Russian counterparties.
There's also the problem of surging Covid cases in HSBC's home market of Hong Kong. Reduced equity market activity, wealth management slowdowns and closed branches all took their toll last year. That's significant - Hong Kong is an integral part of HSBC's strategy to become more Asia-focused. This includes selling its French retail operation, and the US mass market business. The capital freed up by the reshuffle is being ploughed into historically stronger-performing regions in Asia, which currently make up almost 70% of reported pre-tax profit.
The other arm of the strategy calls for yet more cost saving. Investment in technology and automation has the potential to boost the profitability of any future revenue growth. There's nothing wrong with that as a plan, but the move is taking longer than some had hoped. That's being compounded by sluggish conditions in Asia, which may well persist for some time.
Questionable growth is behind pressure from the group's biggest shareholder to split the business into its Asian and non-Asian parts. While nothing formal is on the table, it's something investors should keep in mind.
Ultimately, HSBC's Asian focus means it could offer more opportunity than domestic peers. As a banking giant, HSBC's fortunes will track the wider economy, so with economic uncertainty rising, ups and downs are likely.
HSBC key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results
The group's total loans and advances to customers were broadly flat at $1trn, while net interest margins - the difference between what a bank earns in interest on loans and pays on deposits - rose to 1.30% from 1.21%.
There were unfavourable market impacts in insurance manufacturing in Wealth and Personal Banking, but there was a 5% increase in international customers, who generate around double the revenue of domestic customers on average. There was a 21.5% reduction in underlying pre-tax profit in the division, to $2.9bn.
Commercial Banking saw underlying pre-tax profit rise to $3.6bn from $3.2bn, supported by a 14% increase in adjusted revenue. This reflected a 20% rise in the group's international and trade businesses. Global Banking and Markets pre-tax profit fell 10% to $2.9bn. That was despite a "good" performance in transaction banking.
Cost savings helped underlying operating expenses fall 1% and the group said "we remain confident in our ability to deliver 2022 adjusted operating expenses in line with 2021, despite inflationary pressures."
HSBC's CET1 ratio - and important measure of a bank's capitalisation- fell 2.2 percentage points to 13.6%. The decline reflects the effect of regulatory changes and changes in valuations.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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