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HSBC Q2 Pre-Tax Earnings Increase Y/Y as ECL Charges Decline
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HSBC Holdings (HSBC - Free Report) reported a second-quarter 2024 pre-tax profit of $8.9 billion, up 1.5% from the prior-year quarter. The reported quarter included a loss related to the recycling of reserves following the completion of the sale of the business in Russia. This was partly offset by growth in Securities Financing and Equities in Global Banking and Markets, and from Wealth in Wealth and Personal Banking.
Results were aided by a decline in expected credit losses and other credit impairment charges (ECL). However, a fall in revenues and higher expenses were the undermining factors.
Revenues Decline, Expenses Rise
Total revenues were $16.5 billion, down 1% year over year. The decline primarily resulted from a fall in net interest income.
Operating expenses increased 3.5% year over year to $8.1 billion. The rise primarily resulted from higher technology costs, including investment, the second-quarter 2023 reversal of historical asset impairments, which did not recur, and inflationary impacts. This was partly offset by reductions following the completion of disposals in Canada and France.
In the quarter under review, ECL was $346 million, down 62.1% year over year.
The common equity tier 1 (CET1) ratio as of Jun 30, 2024, was 15.0%, up from 14.7% as of Jun 30, 2023. The leverage ratio was 5.7% compared with 5.8% at the end of June 2023.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $3.28 billion in pre-tax profit, down 1.3% from the year-ago period. The plunge was due to an increase in operating expenses.
Commercial Banking: The segment reported a pre-tax profit of $3.18 billion, up 1.8% from the year-ago quarter. Lower ECL charges led to the increase.
Global Banking and Markets: Pre-tax profit was $1.79 billion, which increased 16.1% year over year.
Corporate Centre: The segment reported a pre-tax profit of $658 million, down 16% from the year-ago quarter.
Capital Deployment Update
HSBC’s board of directors approved a second interim dividend of 10 cents per share.
The company intends to initiate a share buyback of up to $3 billion, which will likely be completed within three months.
Outlook
For 2024, management expects a banking net interest income of $43 billion.
The company projects customer lending growth in the mid-single digits over the medium to long term.
HSBC targets year-over-year operating expense growth of 5% for 2024.
For 2024, ECL charges, as a percentage of average gross loans, are expected between 30 and 40 basis points.
HSBC expects a return on average tangible equity in the mid-teens for 2024 and 2025, which excludes the impacts of notable items.
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 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.
HSBC Holdings plc Price, Consensus and EPS Surprise
Deutsche Bank (DB - Free Report) reported a second-quarter 2024 loss attributable to its shareholders of €143 million ($155.6 million) against the year-ago reported profit attributable to shareholders of €763 million ($830.7 million).
DB’s results were negatively impacted by an increase in expenses and a rise in provision for credit losses. However, growth in commissions and fee income, and stable net interest income acted as tailwinds.
ICICI Bank Ltd.’s (IBN - Free Report) net income for the first quarter of fiscal 2025 (ended Jun 30, 2024) was INR 110.6 billion ($1.32 billion), up 14.6% from the prior-year quarter.
IBN’s results were driven by a rise in net interest income, non-interest income, and growth in loans and deposits. However, higher operating expenses and provisions were the undermining factors.
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HSBC Q2 Pre-Tax Earnings Increase Y/Y as ECL Charges Decline
HSBC Holdings (HSBC - Free Report) reported a second-quarter 2024 pre-tax profit of $8.9 billion, up 1.5% from the prior-year quarter. The reported quarter included a loss related to the recycling of reserves following the completion of the sale of the business in Russia. This was partly offset by growth in Securities Financing and Equities in Global Banking and Markets, and from Wealth in Wealth and Personal Banking.
Results were aided by a decline in expected credit losses and other credit impairment charges (ECL). However, a fall in revenues and higher expenses were the undermining factors.
Revenues Decline, Expenses Rise
Total revenues were $16.5 billion, down 1% year over year. The decline primarily resulted from a fall in net interest income.
Operating expenses increased 3.5% year over year to $8.1 billion. The rise primarily resulted from higher technology costs, including investment, the second-quarter 2023 reversal of historical asset impairments, which did not recur, and inflationary impacts. This was partly offset by reductions following the completion of disposals in Canada and France.
In the quarter under review, ECL was $346 million, down 62.1% year over year.
The common equity tier 1 (CET1) ratio as of Jun 30, 2024, was 15.0%, up from 14.7% as of Jun 30, 2023. The leverage ratio was 5.7% compared with 5.8% at the end of June 2023.
Quarterly Performance by Business Lines
Wealth and Personal Banking: The segment reported $3.28 billion in pre-tax profit, down 1.3% from the year-ago period. The plunge was due to an increase in operating expenses.
Commercial Banking: The segment reported a pre-tax profit of $3.18 billion, up 1.8% from the year-ago quarter. Lower ECL charges led to the increase.
Global Banking and Markets: Pre-tax profit was $1.79 billion, which increased 16.1% year over year.
Corporate Centre: The segment reported a pre-tax profit of $658 million, down 16% from the year-ago quarter.
Capital Deployment Update
HSBC’s board of directors approved a second interim dividend of 10 cents per share.
The company intends to initiate a share buyback of up to $3 billion, which will likely be completed within three months.
Outlook
For 2024, management expects a banking net interest income of $43 billion.
The company projects customer lending growth in the mid-single digits over the medium to long term.
HSBC targets year-over-year operating expense growth of 5% for 2024.
For 2024, ECL charges, as a percentage of average gross loans, are expected between 30 and 40 basis points.
HSBC expects a return on average tangible equity in the mid-teens for 2024 and 2025, which excludes the impacts of notable items.
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 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.
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.
Performances of Other Foreign Banks
Deutsche Bank (DB - Free Report) reported a second-quarter 2024 loss attributable to its shareholders of €143 million ($155.6 million) against the year-ago reported profit attributable to shareholders of €763 million ($830.7 million).
DB’s results were negatively impacted by an increase in expenses and a rise in provision for credit losses. However, growth in commissions and fee income, and stable net interest income acted as tailwinds.
ICICI Bank Ltd.’s (IBN - Free Report) net income for the first quarter of fiscal 2025 (ended Jun 30, 2024) was INR 110.6 billion ($1.32 billion), up 14.6% from the prior-year quarter.
IBN’s results were driven by a rise in net interest income, non-interest income, and growth in loans and deposits. However, higher operating expenses and provisions were the undermining factors.