HSBC Holdings plc (HSBA) Ordinary USD0.50

HSBC reported fourth-quarter revenue of $13.0bn, down $1.6bn. That included a $2.0bn hit from the reclassification of its French retail banking division relating to its sale. Profit before tax fell $4.0bn to $1.0bn, with a $3.0bn impact from an impairment taken against the value of BoCom, a Chinese bank HSBC has a stake in.

Net interest margin (NIM, a measure of profitability in borrowing/lending) came in at 1.52%, compared to 1.70% the prior quarter. Charges for expected loan losses totalled $1.0bn, with $200mn in relation to Chinese commercial real estate assets.

The CET1 ratio, a key measure of financial resilience, was 14.8% (14.0-14.5% target range). A dividend of $0.31 was announced along with a share buyback programme of up to $2bn, expected to complete before first-quarter results are announced.

Costs are expected to rise 5% in 2024, higher than consensus had pencilled in. Banking net interest income is expected around $41bn.

The shares fell 7.0% in early trading.

Our view

As usual, there's some noise to look through in these results. The fourth quarter alone was impacted by two major impairments: a $3bn write-down in the value of BoCom (a Chinese bank HSBC has a stake in) and a $2bn write-down from the sale of its French operations. Backing out a lot of the mess, it looks like performance was a little worse than expected with higher operating costs more than offsetting slightly better impairments.

The outlook is equally as messy. Returns are expected in the mid-teens once some one-off bits are backed out, costs are forecast to rise 5% and loan loss levels are expected to tick higher. Overall, that paints a mixed underlying picture that looks to be a little worse than the current consensus has built-in.

HSBC's exposure to Asia sets it apart from many of its large UK peers. Lacklustre growth for several years has brought 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.

There's progress on the portfolio reshuffle, with the sale of its French business now complete and the Canadian sale set to go through early this year. Aside from the potential for shareholder returns, the capital freed up is being ploughed into what have been historically stronger-performing regions in Asia.

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, but they remain a lingering issue. There are also ongoing challenges in the Chinese commercial real estate market which is leading to higher charges taken in preparation for defaults.

The Asian focus is a differentiator from many of its peers, and we continue to see the potential for further growth from areas like wealth management. There's plenty of scope for shareholder returns with the balance sheet in a strong place. HSBC is our preferred UK-listed name for Asian exposure, though we prefer domestic-focused banks overall. But we must caution, the near-term could be bumpy and no returns are ever guaranteed.

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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