HSBC falls short on fourth quarter revenues and profits

Asian-focused HSBC posted lower than expected revenues and profits for the final three months of 2018 as volatility in financial markets took its toll, meaning that top-line growth failed to keep up with expenses.

Adjusted net profits fell by 1.0% in the fourth quarter to reach $3.39bn, falling well short of a consensus estimate compiled by the lender for its bottom line of $4.4bn.

That was despite a 5.0% rise in adjusted revenues to $12.56bn (consensus: $13.5bn), as costs grew more rapidly, with growth in the former restrained by financial market volatility at the tail-end of last year.

By segments, revenue at its Global Markets unit dropped by $202m versus 2017 to reach $1.1bn, while in wealth management it was down by 18% at $1.1bn.

However, management reiterated its commitment to the previously announced 2020 financial targets for top-line growth in Asia, the profitability of its US arm and for growing its UK mortgage and customer base and of completing the set-up of a ring-fenced UK bank.

For the full 2018 calendar year, reported profits before tax were ahead by 16% at $19.9bn, on the back of a 5% increase in reported revenues to $53.8bn while operating expenses fell by 1% to $34.7bn.

Adjusted revenues on the other hand were 4% higher, lagging behind a 6% jump in adjusted operating expenses.

The closely-followed 'jaws' metric, which is the difference between the two, was thus at -1.2%, which the lender blamed on an 8% quarter-on-quarter drop in its adjusted net revenues over the three months to 31 December.

HSBC's return on average tangible equity did improve last year, from 6.8% to 8.6%, with its common equity Tier 1 ratio coming in at 14.0%.

The full-year payout was kept at $0.51 with management "confident" of its ability to maintain that level.

ANALYSTS REACT

Commenting on HSBC's results, Richard Hunter at Interactive Investor pointed out that the slowdown in China's economy had yet to "fully wash through", even as Brexit concerns weighed and regulatory and collective litigation costs were distracting management a bit.

Market expectations with HSBC were usually also high, he said.

However, Hunter described the lender's caspital cushion as "robust" and highlighted its "much improved" return on equity.

"In all, the figures are strong, but not quite strong enough to allay concerns which have tended to overhang the sector as a whole. [...] The bank is relatively sanguine around the Chinese economy, given the region’s changing demographics which should play into its hands longer term and its overall outlook comments are guardedly optimistic," Hunter added.

"The projected dividend yield of around 6% is also an attraction in the current interest rate environment."

For his part, Neil Wilson, Chief Market Analyst at Markets.com, labeled the negative jaws number "[worrisome] if you are looking at how the shares might perform over the medium term."

There were also doubts in the market around the lender's target for its return on average tangible equity to improve to 10%, Wilson said.

With a view to the immediate near-term, the key level of technical of support to watch for HSBC's London-listed shares appeared to lie at 630p, said Jose Maria Rodriguez, Sharecast's chief technical analyst.

As of 0735 GMT, HSBC's Hong Kong-listed shares were trading lower by 1.48% to $66.70HKD.

-- More to follow --