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HSBC Q1 Pre-Tax Earnings Decline Y/Y, Revenues & Costs Fall
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HSBC Holdings (HSBC - Free Report) reported first-quarter 2022 pre-tax profit of $4.2 billion, down 27.9% from $5.8 billion recorded in the prior-year quarter.
Results were primarily hurt by a decline in adjusted revenues, partly offset by lower expenses. The expected credit losses and other credit impairment charges (ECL) were a charge in the quarter under review against a release in the prior-year quarter, which was another headwind.
Adjusted Revenues & Expenses Decline
Adjusted total revenues of $12.5 billion decreased 3.2% year over year. Reported revenues were down 4% to $12.5 billion.
Adjusted operating expenses declined 1.8% year over year to $7.9 billion. Continued growth in technology investment and the effects of higher inflation were more than offset by the impact of the cost-saving initiatives and a lower performance-related pay accrual due to the expected phasing of profits for the year.
In the quarter under review, reported ECL was a charge of $0.6 billion against a net release of $0.4 billion in the prior-year quarter. Increased ECL primarily reflected the direct and broader economic impacts of the Russia-Ukraine war and inflationary pressures on the forward economic outlook, partly mitigated by the release of substantially all of the remaining Covid-19 reserves.
Common equity Tier 1 (CET1) ratio as of Mar 31, 2022, was 14.1%, down from 15.9% recorded as of Mar 31, 2021. Leverage ratio was 5.7%, up from 5.4% at the end of March 2021.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $1.2 billion in pre-tax profit, down 37.1% from the year-ago period. The decline was due to a fall in revenues.
Commercial Banking: The segment reported a pre-tax profit of $1.8 billion, decreasing 1.6% from the prior-year quarter. A rise in expenses was partly offset by higher revenues.
Global Banking and Markets: Pre-tax profit was $1.2 billion, down 33.8% from the prior-year quarter-end. A decline in revenues was partially offset by lower expenses.
Corporate Centre: The segment reported a pre-tax profit of $4 million, down 98.6% from the year-ago quarter.
Share Repurchase Update
HSBC intends to initiate the $1-billion share repurchase plan (announced during 2021 results) after the annual general meeting on Apr 29, 2022.
Outlook
Management expects mid-single-digit percentage revenue growth in 2022.
Full-year 2022 adjusted operating expenses are projected to be in line with that reported in 2021 despite inflationary pressures. Cost to achieve spend of $3.4 billion is expected to generate more than $2 billion of cost savings in the year.
In 2023, the company expects to manage growth in adjusted operating expenses of 0-2% from 2022.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30bps of average loans in 2022.
Management expects to achieve a return on tangible equity of 10% or more for 2023.
CET1 ratio is expected to be between 14% and 14.5% in the medium term. The planned disposal of HSBC’s French retail operations is expected to adversely impact CET1 ratio by 35 bps in the second half of 2022.
Management expects mid-single-digit growth in risk-weighted assets (RWAs) in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. RWA savings are projected to be more than $120 billion by the end of 2022.
Our View
The low interest rate environment across the globe is expected to continue hurting HSBC’s revenue growth to some extent. Although its initiatives to improve market share in the U.K. and China will likely continue to support financials, these might lead to a rise in expenses, which will hurt the bottom line.
However, the company’s strong capital position, initiatives to strengthen digital capabilities, extensive network and efforts to improve operating efficiency through business-restructuring plans are expected to support financials.
Exiting from the U.S. and French retail banking operations will help HSBC focus on Asia. In sync with this, the acquisition of AXA Singapore insurance assets and agreement to buy L&T Investment Management Limited will expand the company's business in the region.
HSBC Holdings plc Price, Consensus and EPS Surprise
Performance & Earnings Release Date of Other Foreign Banks
ICICI Bank’s (IBN - Free Report) fourth-quarter fiscal 2022 (ended Mar 31) net income was INR70.19 billion ($926 million), jumping 59% from the prior-year quarter. In fiscal 2022, net income of INR233.39 billion ($3.1 billion) grew 44% from the prior year.
IBN’s results were driven by a rise in net interest income, non-interest income and growth in loans and deposits. Provisions also declined during the quarter. However, higher operating expenses posed a headwind for ICICI Bank.
Barclays (BCS - Free Report) is slated to report quarterly results on Apr 28.
The Zacks Consensus Estimate for Barclays’ first-quarter 2022 earnings has been revised 8.8% upward over the past 30 days.
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HSBC Q1 Pre-Tax Earnings Decline Y/Y, Revenues & Costs Fall
HSBC Holdings (HSBC - Free Report) reported first-quarter 2022 pre-tax profit of $4.2 billion, down 27.9% from $5.8 billion recorded in the prior-year quarter.
Results were primarily hurt by a decline in adjusted revenues, partly offset by lower expenses. The expected credit losses and other credit impairment charges (ECL) were a charge in the quarter under review against a release in the prior-year quarter, which was another headwind.
Adjusted Revenues & Expenses Decline
Adjusted total revenues of $12.5 billion decreased 3.2% year over year. Reported revenues were down 4% to $12.5 billion.
Adjusted operating expenses declined 1.8% year over year to $7.9 billion. Continued growth in technology investment and the effects of higher inflation were more than offset by the impact of the cost-saving initiatives and a lower performance-related pay accrual due to the expected phasing of profits for the year.
In the quarter under review, reported ECL was a charge of $0.6 billion against a net release of $0.4 billion in the prior-year quarter. Increased ECL primarily reflected the direct and broader economic impacts of the Russia-Ukraine war and inflationary pressures on the forward economic outlook, partly mitigated by the release of substantially all of the remaining Covid-19 reserves.
Common equity Tier 1 (CET1) ratio as of Mar 31, 2022, was 14.1%, down from 15.9% recorded as of Mar 31, 2021. Leverage ratio was 5.7%, up from 5.4% at the end of March 2021.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $1.2 billion in pre-tax profit, down 37.1% from the year-ago period. The decline was due to a fall in revenues.
Commercial Banking: The segment reported a pre-tax profit of $1.8 billion, decreasing 1.6% from the prior-year quarter. A rise in expenses was partly offset by higher revenues.
Global Banking and Markets: Pre-tax profit was $1.2 billion, down 33.8% from the prior-year quarter-end. A decline in revenues was partially offset by lower expenses.
Corporate Centre: The segment reported a pre-tax profit of $4 million, down 98.6% from the year-ago quarter.
Share Repurchase Update
HSBC intends to initiate the $1-billion share repurchase plan (announced during 2021 results) after the annual general meeting on Apr 29, 2022.
Outlook
Management expects mid-single-digit percentage revenue growth in 2022.
Full-year 2022 adjusted operating expenses are projected to be in line with that reported in 2021 despite inflationary pressures. Cost to achieve spend of $3.4 billion is expected to generate more than $2 billion of cost savings in the year.
In 2023, the company expects to manage growth in adjusted operating expenses of 0-2% from 2022.
Given the current consensus economics and default experience, the company expects ECL charges to normalize toward 30bps of average loans in 2022.
Management expects to achieve a return on tangible equity of 10% or more for 2023.
CET1 ratio is expected to be between 14% and 14.5% in the medium term. The planned disposal of HSBC’s French retail operations is expected to adversely impact CET1 ratio by 35 bps in the second half of 2022.
Management expects mid-single-digit growth in risk-weighted assets (RWAs) in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. RWA savings are projected to be more than $120 billion by the end of 2022.
Our View
The low interest rate environment across the globe is expected to continue hurting HSBC’s revenue growth to some extent. Although its initiatives to improve market share in the U.K. and China will likely continue to support financials, these might lead to a rise in expenses, which will hurt the bottom line.
However, the company’s strong capital position, initiatives to strengthen digital capabilities, extensive network and efforts to improve operating efficiency through business-restructuring plans are expected to support financials.
Exiting from the U.S. and French retail banking operations will help HSBC focus on Asia. In sync with this, the acquisition of AXA Singapore insurance assets and agreement to buy L&T Investment Management Limited will expand the company's business in the region.
HSBC Holdings plc Price, Consensus and EPS Surprise
HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote
Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance & Earnings Release Date of Other Foreign Banks
ICICI Bank’s (IBN - Free Report) fourth-quarter fiscal 2022 (ended Mar 31) net income was INR70.19 billion ($926 million), jumping 59% from the prior-year quarter. In fiscal 2022, net income of INR233.39 billion ($3.1 billion) grew 44% from the prior year.
IBN’s results were driven by a rise in net interest income, non-interest income and growth in loans and deposits. Provisions also declined during the quarter. However, higher operating expenses posed a headwind for ICICI Bank.
Barclays (BCS - Free Report) is slated to report quarterly results on Apr 28.
The Zacks Consensus Estimate for Barclays’ first-quarter 2022 earnings has been revised 8.8% upward over the past 30 days.