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HSBC disappoints with lower than expected rise in profit

HSBC has reported a pre-tax profit of $19.9 billion in 2018, which, although was 16% higher than the previous year, disappointed analysts.

HSBC disappoints with lower than expected rise in profit

HSBC has reported a pre-tax profit of $19.9 billion (£15.4 billion) in 2018, which, although was 16% higher than the previous year, disappointed analysts.

Joseph Dickerson and Aqil Taiyeb from Jeffries said the results ‘showed notable disappointments’ pointed out that Q4 adjusted profit before tax missed target by 41%, They also pointed out that revenue in Q4 was 11% below their estimates adding: ‘whilst FY 18 NIM was up 3bps on 2017, the trajectory through FY 18 was poor: the bulk of the YoY movement was attributed to Q1 18 with the rest of the year flat.’

The Hong Kong-listed shares of the bank fell 2.7% after the announcement. 

Refinitiv data showed analysts were estimating the bank’s pre-tax profit to be close to $22 billion, Reuters said.

Revenue at the bank rose 5% over the year to £53.8 billion, driven by an increase in deposit revenue in its global business. The board approved a fourth interim dividend of $0.21, bringing the total to $0.51 per share for 2018.

Chairman Mark Tucker highlighted a number of headwinds for the bank, including the US-China trade war.

He said: ‘The financial targets that John announced in June remain appropriate, even as the global economic outlook becomes less predictable. Our ability to meet them depends on being able to help our customers manage the present uncertainty and capture the opportunities that unquestionably exist.

‘The system of global trade remains subject to political pressure, and differences between China and the US will likely continue to inform sentiment in 2019. However, the conclusion of major trade agreements – including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership; the EU’s landmark bilateral agreements with Japan and Singapore; and the potential ratification of the US-Mexico-Canada Agreement in 2019 – provide important counterweights that could give impetus to international trade in the year ahead.’

Operating expenses at the bank were 1% lower over the year at $34.7 billion.

The retail banking and wealth management arm of the bank saw an increase of 32.6% in adjusted pre-tax profit to £7 billion. The division grew its mortgage book in the UK and Hong Kong by more than $20 billion. The bank said wealth management revenue was down 2% due to net adverse movements ‘in market impacts of $0.6 billion in life insurance manufacturing’.

CEO John Flint added: ‘These are good results that demonstrate progress against the plan that I outlined in June 2018. Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017. This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020.’

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