HSBC’s $3 billion China writedown hits annual profit record

Author: Selena Lee and Lawrence White

HONG KONG/LONDON (Reuters) – HSBC Holdings Plc posted record annual profit but fell short of analysts’ expectations as revenue growth from high interest rates was offset by a huge $3 billion boost from its stake in a Chinese bank. offset by expenses.

HSBC, which has a market capitalization of $160 billion, reported on Wednesday pre-tax profits of $30.3 billion in 2023, an increase of 78% year-on-year, but lower than the $34.1 billion expected by brokers.

The British bank rewarded investors with $2 billion in new share buybacks and said it would consider a special dividend of $0.21 per share in the first half of 2024 once the Canadian disposal is completed.

However, a $3 billion write-down on the bank’s stake in China Bank of Communications hurt record annual profits.

The bank’s Hong Kong-listed shares fell 3.4% in afternoon trading.

China’s deepening property crisis has had knock-on effects on global banks doing business in the world’s second-largest economy, with HSBC taking the biggest writedowns yet among its foreign peers.

HSBC said it had written down its stake in Bank of Communications following a review of the bank’s likely future cash flows and prospects for loan growth and interest rate spreads amid a more volatile than expected economic recovery in China.

Rival Standard Chartered suffered nearly $1 billion in losses on its Chinese bank stakes in October as widening loan losses squeezed banks’ profits.

“China’s recovery from reopening (after the epidemic) has been bumpier than expected, but its economic growth is consistent with its annual target of around 5% in 2023,” Chairman Mark Tucker said in a press release.

Cautious outlook, rising costs

Europe’s largest bank said it remained cautious about its loan growth prospects in the first half of 2024, given slowing economic growth in many economies where inflation persists.

HSBC said costs rose 6% more than expected in 2023 due to the impact of higher-than-expected bank levies in the United States and the United Kingdom. The bank also said costs will rise a further 5% in 2024 as the company grapples with inflation as it invests in its business.

The bank reported a key performance target of 14.6% return on tangible equity (ROTE) for 2023, below expectations of 17%. The bank said it will continue to control the ROTE target in the mid-teens in 2024.

Notably, CEO Noel Quinn’s total compensation will double in 2023 to $10.6 million from $5.6 million the year before, as he continues to take over the job after taking over in 2020. Incentives kicked in, increasing his variable compensation.

HSBC said its bonus pool increased to $3.8 billion from $3.4 billion the previous year, reflecting improved performance, and it would also introduce a new variable pay package for junior and mid-level managers.

The London-based bank declared its fourth interim dividend of $0.31 per share, bringing the total dividend for 2023 to $0.61 per share.

(Reporting by Selena Li in Hong Kong and Lawrence White in London; Editing by Himani Sarkar)

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