30 April 2024
If you are covering HSBC’s Q1 results, please see comments below from Will Howlett, financial analyst at Quilter Cheviot:
“HSBC marked a strong start to the year with solid financial performance and an impressive capital return. However, the announcement has been overshadowed by the unexpected news that CEO, Noel Quinn, will be stepping down. This comes as a surprise, especially given Quinn’s relatively short tenure during which he has led the bank through significant changes. The departure of Quinn introduces an element of uncertainty about the bank’s future leadership at a time when HSBC is navigating a complex global financial landscape.
“On an underlying basis, and stripping out exceptionals such as the $4.8 billion from the sale of its Canadian operations and the $1.1 billion impairment from classifying Argentina as held for sale, profit before tax is down 4% year-on-year but 11% ahead of consensus.
“The revenue growth of 3% outpaces consensus, driven by a 10% increase in banking net interest income, albeit influenced by hyperinflation effects in Argentina. The net interest margin has improved by 11 basis points quarter-on-quarter to 1.63%, and while loans have seen a marginal increase, deposits have decreased by 2%. Wealth management stands out with a 14% revenue increase, highlighting HSBC’s diversified income streams.
“Cost control has been effective, with a 7% year-on-year increase but still 1% below consensus. The bank has managed to navigate cost pressures, including changes in performance-related pay and incremental levies, while maintaining its FY24 cost growth guidance at 5%.
“Asset quality remains a focus, with loan losses at $0.7 billion for the quarter, below the second half of 2023’s run-rate, which was impacted by China’s commercial real estate losses. The loan loss charge is at 30 basis points, well within the full-year guidance of approximately 40 basis points.
“The announcement of an impressive capital return of $8.8 billion today is a testament to HSBC’s strong capital position, with a CET1 ratio improvement of 40 basis points to 15.2%. This capital return includes a $0.10 ordinary dividend, a $0.21 special dividend from the Canada disposal, and an up to $3 billion share buyback, which is ahead of the consensus estimate of $2 billion.
“Looking ahead, HSBC has reiterated its FY24 guidance, which appears conservative against the backdrop of delayed rate cuts. The guidance includes a mid-teen return on tangible equity (RoTE), driven by more than $41 billion in banking net interest income, and a cautious yet recovering loan growth outlook.
“Investors may find HSBC’s narrative appealing, especially given the higher-for-longer interest rate environment, although there may be more attractively priced opportunities elsewhere in the market.”
