HSBC shares fell on Wednesday after the banks released mixed full year earnings and a broadly disappointing Q4 trading update.
Unlike Barclays yesterday, HSBC was unable to gloss over falling Q4 profits and a mixed outlook with a share buyback.
HSBC shares were down 5% at the time of writing.
The £2bn share buyback announced today by HSBC is by no means insignificant, yet investors are more concerned about falling revenue and huge impairments almost wiping out profit.
Q4 operating profit fell £4bn to £1bn primarily due to impairment charges.
The Chinese real estate sector continues to be a hindrance for HSBC, and the bank recorded a £3bn impairment charge related to their associate BoCom. In addition, HSBC recorded a £2bn impairment as its French retail banking operations were reclassified as held for sale.
The outlook failed to inspire. The bank said cost were to rise 5% in the next year which isn’t overly dramatic. However, in the context of Barclays cost cutting measures announced yesterday and wider headcount reduction across other major banks, HSBC could be perceived to be behind the curve in managing overheads.
“If there was an award for simple and clean results then HSBC would get the booby prize. There’s a lot to unpack here, with the fourth quarter alone impacted by two major impairments: a $3bn write-down in the value of BoCom (Chinese bank) and a $2bn write-down from the sale of its French operation. Backing out a lot of the mess, it looks like performance was a little worse than expected with higher operating costs more than offsetting slightly better impairments,” said Matt Britzman, equity analyst, Hargreaves Lansdown
“Mainland China remains a question mark. The write-down of BoCom follows a similar pattern to what Standard Chartered did last quarter and while loan loss charges were better than expected, the Chinese commercial real estate sector continues to be weak.
“The outlook is equally as messy. Returns are expected in the mid-teens once some one-off bits are backed out, costs are forecast to rise 5% and loan loss levels are expected to tick higher. Overall, that paints a mixed underlying picture that looks to be a little worse than the current consensus has built-in.”
