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HSBC Stock Up as Q3 Pre-Tax Earnings Jump on Higher Revenues
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HSBC Holdings (HSBC - Free Report) reported a third-quarter 2023 pre-tax profit of $7.7 billion, up substantially from $3.2 billion in the prior-year quarter. Last year's quarter included a $2.3 billion impairment charge relating to the planned sale of its retail banking operations in France.
Shares of HSBC gained 1.2% in pre-market trading as investors cheered solid results.
Results reflected a rise in revenues on higher interest rates and stable expected credit losses and other credit impairment charges (ECL). However, an increase in expenses was a headwind.
Revenues Improve, Expenses Rise
Total revenues were $16.16 billion, jumping 40.4% year over year. The rise was primarily driven by an increase in net interest income.
Operating expenses rose 2% to $7.97 billion. The increase was mainly due to a rise in technology costs, impacts of rising inflation and a higher performance-related pay accrual.
In the quarter under review, ECL was $1.07 billion, relatively stable year over year.
The common equity tier 1 (CET1) ratio as of Sep 30, 2023, was 14.9%, up from the 14.2% recorded as of Dec 31, 2022. The leverage ratio was 5.7% compared with 5.8% at the end of December 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $2.27 billion in pre-tax profit, up significantly from $0.2 billion in the year-ago period. The surge was driven by growth in net interest income.
Commercial Banking: The segment reported a pre-tax profit of $2.85 billion, up 40% from the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.32 billion, down 10%. The decline was due to higher costs.
Corporate Centre: The segment reported a pre-tax profit of $765 million against a loss before tax of $481 million recorded in the year-ago quarter.
Capital Deployment Update
HSBC announced a third interim dividend of 10 cents per share. The company intends to initiate a further share buyback of up to $3 billion, which is expected to commence shortly and be completed by Feb 21, 2024.
Outlook
For 2023, net interest income is expected to be above $35 billion.
HSBC targets operating expense growth of 3% for 2023, excluding the impacts of foreign currency translation differences, notable items and the effects of retranslating the 2022 results of hyperinflationary economies at constant currency. It also excludes the impact of the company’s acquisition of SVB UK and related investments internationally, which are expected to add 1% to operating expenses.
Nonetheless, the company now expects an additional almost 1% rise in expenses due to increased technology and operations expenditures. Further, management expects a potential increase in performance-related pay and ongoing execution of its strategy in the fourth quarter of 2023, which will result in a further rise of roughly 1% in operating expenses.
For 2023, ECL charges are expected to be 40 basis points.
Based on the path implied by the market for global policy rates, the company expects a return on tangible equity in the mid-teens for 2023 and 2024, which excludes the impacts of material acquisitions and disposals.
The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
Our View
HSBC’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. Although the company’s initiatives to improve market share in Asia will support financials, these will lead to a rise in expenses. The worsening operating backdrop is another headwind.
Barclays (BCS - Free Report) reported a third-quarter 2023 net income attributable to ordinary equity holders of £1.27 billion ($1.61 billion), down 16% from the prior-year quarter.
BCS recorded an increase in revenues, along with higher credit impairment charges. Operating expenses increased marginally in the quarter under review.
Deutsche Bank (DB - Free Report) reported a third-quarter 2023 profit attributable to its shareholders of €1.03 billion ($1.12 billion), down 7.5% from the year-ago quarter. The Germany-based lender reported a profit before tax of €1.72 billion ($1.88 billion), up 6.7% year over year.
Higher net revenues, lower provisions and a strong capital position acted as tailwinds for DB. However, a rise in operating expenses was an offsetting factor.
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HSBC Stock Up as Q3 Pre-Tax Earnings Jump on Higher Revenues
HSBC Holdings (HSBC - Free Report) reported a third-quarter 2023 pre-tax profit of $7.7 billion, up substantially from $3.2 billion in the prior-year quarter. Last year's quarter included a $2.3 billion impairment charge relating to the planned sale of its retail banking operations in France.
Shares of HSBC gained 1.2% in pre-market trading as investors cheered solid results.
Results reflected a rise in revenues on higher interest rates and stable expected credit losses and other credit impairment charges (ECL). However, an increase in expenses was a headwind.
Revenues Improve, Expenses Rise
Total revenues were $16.16 billion, jumping 40.4% year over year. The rise was primarily driven by an increase in net interest income.
Operating expenses rose 2% to $7.97 billion. The increase was mainly due to a rise in technology costs, impacts of rising inflation and a higher performance-related pay accrual.
In the quarter under review, ECL was $1.07 billion, relatively stable year over year.
The common equity tier 1 (CET1) ratio as of Sep 30, 2023, was 14.9%, up from the 14.2% recorded as of Dec 31, 2022. The leverage ratio was 5.7% compared with 5.8% at the end of December 2022.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $2.27 billion in pre-tax profit, up significantly from $0.2 billion in the year-ago period. The surge was driven by growth in net interest income.
Commercial Banking: The segment reported a pre-tax profit of $2.85 billion, up 40% from the year-ago quarter. Higher revenues supported the rise.
Global Banking and Markets: Pre-tax profit was $1.32 billion, down 10%. The decline was due to higher costs.
Corporate Centre: The segment reported a pre-tax profit of $765 million against a loss before tax of $481 million recorded in the year-ago quarter.
Capital Deployment Update
HSBC announced a third interim dividend of 10 cents per share. The company intends to initiate a further share buyback of up to $3 billion, which is expected to commence shortly and be completed by Feb 21, 2024.
Outlook
For 2023, net interest income is expected to be above $35 billion.
HSBC targets operating expense growth of 3% for 2023, excluding the impacts of foreign currency translation differences, notable items and the effects of retranslating the 2022 results of hyperinflationary economies at constant currency. It also excludes the impact of the company’s acquisition of SVB UK and related investments internationally, which are expected to add 1% to operating expenses.
Nonetheless, the company now expects an additional almost 1% rise in expenses due to increased technology and operations expenditures. Further, management expects a potential increase in performance-related pay and ongoing execution of its strategy in the fourth quarter of 2023, which will result in a further rise of roughly 1% in operating expenses.
For 2023, ECL charges are expected to be 40 basis points.
Based on the path implied by the market for global policy rates, the company expects a return on tangible equity in the mid-teens for 2023 and 2024, which excludes the impacts of material acquisitions and disposals.
The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.
HSBC expects a dividend payout ratio of 50% for both 2023 and 2024.
Our View
HSBC’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. Although the company’s initiatives to improve market share in Asia will support financials, these will lead to a rise in expenses. The worsening operating backdrop is another headwind.
Currently, HSBC carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Barclays (BCS - Free Report) reported a third-quarter 2023 net income attributable to ordinary equity holders of £1.27 billion ($1.61 billion), down 16% from the prior-year quarter.
BCS recorded an increase in revenues, along with higher credit impairment charges. Operating expenses increased marginally in the quarter under review.
Deutsche Bank (DB - Free Report) reported a third-quarter 2023 profit attributable to its shareholders of €1.03 billion ($1.12 billion), down 7.5% from the year-ago quarter. The Germany-based lender reported a profit before tax of €1.72 billion ($1.88 billion), up 6.7% year over year.
Higher net revenues, lower provisions and a strong capital position acted as tailwinds for DB. However, a rise in operating expenses was an offsetting factor.