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HSBC Q1 Earnings Down on Streamlining Efforts, Revenues Rise
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HSBC Holdings plc (HSBC - Free Report) reported first-quarter 2017 results. The company recorded net profit attributable to shareholders of $3.5 billion, down 19% from the year-ago quarter. Basically, the decline reflected absence of Brazil business results, which was divested last July.
In pre-market trading on NYSE, shares of HSBC rose nearly 4%. Improved top-line growth seems to have cheered the investors. Notably, the price reaction during the full trading session will provide a better idea about how the investors accepted the results.
Despite witnessing steady success in its cost-saving initiatives, HSBC’s results were hampered by streamlining operations. Further, a rise in operating expenses acted as a headwind. However, the company recorded lower loan impairment charges and a slight improvement in revenues, but that was not enough to support the bottom line.
Adjusted total revenue of $12.8 billion grew 2% year over year. Rise in net fee income was partially offset by a fall in net interest income and lower net trading income.
Adjusted loan impairment charges and other credit risk provisions plunged 71% from the year-ago quarter to $236 million.
Adjusted total operating expenses increased 3% from the prior-year quarter to $7.2 billion. Absence of credit relating to the 2015 U.K. bank levy, inflation and continued investment in regulatory and growth efforts were partly offset by the impact of cost-saving initiatives.
Quarterly Performance by Business Line
Retail Banking and Wealth Management: The segment reported $1.5 billion in pre-tax profit, rising 39% year over year. The increase was driven by a decline in operating expenses and loan impairment charges and a slight rise in revenues.
Commercial Banking: The segment reported pre-tax profit of $1.8 billion, jumping 19% from the year-ago quarter. The rise was largely due to a decrease in operating expenses, partly offset by fall in revenues.
Global Banking and Markets: Pre-tax profit for the segment was $1.7 billion, up 2% from the prior-year quarter. The increase was primarily attributable to a decrease in operating expenses, partially offset by a fall in revenues.
Global Private Banking: Pre-tax profit for the segment was $2 million, down 17% from the year-ago quarter. The decline was largely due to lower top line.
Corporate Centre: The segment recorded a pre-tax profit of $8 million, significantly down from $1.9 billion in the year-ago period. The deterioration was owing to lower revenues.
Improved Capital Ratios
Common equity Tier 1 ratio (transitional) as of Mar 31, 2017 was 14.3%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.5%, up from 5.4% as of Dec 31, 2016.
Share Repurchase Update
HSBC completed its share buyback authorization of $1.0 billion in April.
Our Viewpoint
By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency. Further, the company remains on track to exceed its cost savings target. However, weak European and Chinese economies, low loan demand and litigation expenses will continue to limit the bank’s growth in the near term.
HSBC Holdings PLC Price, Consensus and EPS Surprise
Deutsche Bank AG (DB - Free Report) reported net income of €575 million ($612.6 million) in first-quarter 2017, significantly up on a year-over-year basis. Income before income taxes came in at €878 million ($935.4 million), up 52% year over year. Cost management and reduction in provisions were the positive factors. However, lower revenues adversely affected the results.
UBS Group AG (UBS - Free Report) reported first-quarter 2017 pre-tax operating profit of CHF 1.93 billion ($1.92 billion) on an adjusted basis, up 40.9% from the prior-year quarter. Results reflected increase in net trading income, and net fee and commission income. Also, the quarter benefited from the company’s consistent focus on expense management.
Barclays PLC’s (BCS - Free Report) first-quarter 2017 net income from continuing operations was £1.21 billion ($1.50 billion), which more than doubled from £545 million recorded in the prior-year quarter. A rise in revenues and lower expenses were partially offset by an increase in credit impairment charges.
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HSBC Q1 Earnings Down on Streamlining Efforts, Revenues Rise
HSBC Holdings plc (HSBC - Free Report) reported first-quarter 2017 results. The company recorded net profit attributable to shareholders of $3.5 billion, down 19% from the year-ago quarter. Basically, the decline reflected absence of Brazil business results, which was divested last July.
In pre-market trading on NYSE, shares of HSBC rose nearly 4%. Improved top-line growth seems to have cheered the investors. Notably, the price reaction during the full trading session will provide a better idea about how the investors accepted the results.
Despite witnessing steady success in its cost-saving initiatives, HSBC’s results were hampered by streamlining operations. Further, a rise in operating expenses acted as a headwind. However, the company recorded lower loan impairment charges and a slight improvement in revenues, but that was not enough to support the bottom line.
Higher Costs Offset Lower Impairment Charges & Modest Revenue Growth
Adjusted total revenue of $12.8 billion grew 2% year over year. Rise in net fee income was partially offset by a fall in net interest income and lower net trading income.
Adjusted loan impairment charges and other credit risk provisions plunged 71% from the year-ago quarter to $236 million.
Adjusted total operating expenses increased 3% from the prior-year quarter to $7.2 billion. Absence of credit relating to the 2015 U.K. bank levy, inflation and continued investment in regulatory and growth efforts were partly offset by the impact of cost-saving initiatives.
Quarterly Performance by Business Line
Retail Banking and Wealth Management: The segment reported $1.5 billion in pre-tax profit, rising 39% year over year. The increase was driven by a decline in operating expenses and loan impairment charges and a slight rise in revenues.
Commercial Banking: The segment reported pre-tax profit of $1.8 billion, jumping 19% from the year-ago quarter. The rise was largely due to a decrease in operating expenses, partly offset by fall in revenues.
Global Banking and Markets: Pre-tax profit for the segment was $1.7 billion, up 2% from the prior-year quarter. The increase was primarily attributable to a decrease in operating expenses, partially offset by a fall in revenues.
Global Private Banking: Pre-tax profit for the segment was $2 million, down 17% from the year-ago quarter. The decline was largely due to lower top line.
Corporate Centre: The segment recorded a pre-tax profit of $8 million, significantly down from $1.9 billion in the year-ago period. The deterioration was owing to lower revenues.
Improved Capital Ratios
Common equity Tier 1 ratio (transitional) as of Mar 31, 2017 was 14.3%, up from 13.6% as of Dec 31, 2016. Further, leverage ratio was 5.5%, up from 5.4% as of Dec 31, 2016.
Share Repurchase Update
HSBC completed its share buyback authorization of $1.0 billion in April.
Our Viewpoint
By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency. Further, the company remains on track to exceed its cost savings target. However, weak European and Chinese economies, low loan demand and litigation expenses will continue to limit the bank’s growth in the near term.
HSBC Holdings PLC Price, Consensus and EPS Surprise
HSBC Holdings PLC Price, Consensus and EPS Surprise | HSBC Holdings PLC Quote
HSBC currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Deutsche Bank AG (DB - Free Report) reported net income of €575 million ($612.6 million) in first-quarter 2017, significantly up on a year-over-year basis. Income before income taxes came in at €878 million ($935.4 million), up 52% year over year. Cost management and reduction in provisions were the positive factors. However, lower revenues adversely affected the results.
UBS Group AG (UBS - Free Report) reported first-quarter 2017 pre-tax operating profit of CHF 1.93 billion ($1.92 billion) on an adjusted basis, up 40.9% from the prior-year quarter. Results reflected increase in net trading income, and net fee and commission income. Also, the quarter benefited from the company’s consistent focus on expense management.
Barclays PLC’s (BCS - Free Report) first-quarter 2017 net income from continuing operations was £1.21 billion ($1.50 billion), which more than doubled from £545 million recorded in the prior-year quarter. A rise in revenues and lower expenses were partially offset by an increase in credit impairment charges.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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