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HSBC - quarterly dividend restored, new buyback

HSBC saw first-quarter revenue rise 74%, ignoring the effect of exchange rates, to $20.2bn.

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HSBC saw first-quarter revenue rise 74%, ignoring the effect of exchange rates, to $20.2bn. Within that, $2.1bn reflected the reversal of a previous charge relating to the planned sale of the French retail banking operations. There was also a £1.5bn provisional gain relating to the acquisition of Silicon Valley Bank (SVB) UK.

Net interest income rose 38%, to $9.0bn, mainly due to higher interest rates. Net interest margin, which measures the profitability of lending/borrowing, rose from 1.19% to 1.69% - but was broadly flat quarter-on-quarter.

In preparation for debt defaults, provisions of $400m were set aside, significantly lower than analysts expected, as HSBC reported an improved economic outlook.

All-in, these factors helped profit before tax, ignoring the effect of exchange rates, rise by $9.0bn to $12.9bn.

Full-year guidance remains, with the group targeting net interest income of at least $34bn and an underlying return on tangible equity of at least 12%.

The board announced an interim dividend for 2023 of $0.1 per share, the first quarterly dividend since 2019. There are also plans for a $2bn buyback, expected to start shortly.

The shares rose in 4.1% trading.

View the latest HSBC share price and how to deal

Our view

There was a lot to unpick in first-quarter results. If we look past some of what we'd call 'accounting profits', the underlying performance was strong.

Interest income isn't the only piece of the pie, but it's certainly a large one, meaning higher rates have given income a significant boost. Arguably more important is the quarter-on-quarter performance, given fears that the rate benefits may have peaked. Net interest margin, which measures the profitability of lending/borrowing, was flat from the fourth quarter but better than analysts expected.

HSBC's exposure to Asia, which accounts for a little less than half of all customer accounts, sets it apart from many of its large UK peers. Lacklustre growth for several years meant significant pressure from a section of the investor base who want to see the business spin out its Asian operations. For now, the board's adamant that's not the right way to go, and the response is a renewed focus on higher growth areas.

The news about the uncertain French sale was unwelcome. Still, there's progress on the portfolio reshuffle, with its Canadian division looking like it'll be shipped off at the start of 2024. The capital freed up is being ploughed into historically stronger-performing regions in Asia and there's potential for further returns to shareholders, though nothing is guaranteed. Hong Kong and China are of note, both are key regions and an improved economic outlook supports future performance - so long as it continues.

Aside from traditional lending, there's also a large global banking arm. Income is diverse, from trading in credit and currency markets to trading finance and payment solutions. Interest rates still impact some income streams, but not to the extent of more traditional banking operations. With interest rate tailwinds easing, we support the diversification this brings.

Now for the challenges. Costs in a higher inflation environment are a bugbear for almost everyone. HSBC has been on a cost-saving mission for years, and it's a good job too. The guidance on cost growth ticked higher at the end of last year and is expected to increase once more now that the SVB UK acquisition has completed. We can now expect costs to rise around 4% this year, hardly unmanageable but something to keep an eye on.

We had some positive news in the first quarter results, with HSBC suggesting the economic outlook was improving. Charges taken in anticipation of debt defaults were lower than expected. But it's far too early to call an end to the potential trouble.

On a CET1 ratio (a key measure of a bank's balance sheet strength) of 14.7%, HSBC is sitting on some solid foundations. The Asian focus is a differentiator from many of its peers, and we continue to see the potential for further growth from the reopening in China. We like the name as a longer-term play but caution the near-term could be bumpy.

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.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 2nd May 2023