HSBC works to contain 'unacceptable' performance in parts of group
HSBC reported a 3% fall in third quarter revenue on Monday, to $13.4bn, which it said was down to lower client activity in its global markets operations, compared with a strong third quarter last year.
The FTSE 100 bank said that in retail banking and wealth management, continued growth in the retail banking segment was broadly offset in insurance manufacturing due to higher adverse market impacts of $177m, while revenue increased in commercial banking and global private banking.
It said its adjusted revenue was off 2% to $13.3bn.
Profit attributable to ordinary shareholders in the three month period ended 30 Septemberwas down 24% to $3.0bn, which the board said reflected “challenging” market conditions, while its return on tangible equity was 6.4% for the quarter on an annualised basis.
Reported profit before slid 18% to $4.8bn, which included additional customer redress provisions of $606m and $120m of severance costs, and adjusted profit before tax was off 12% to $5.3bn.
HSBC said the reduction in revenue included an adverse movement in credit and funding valuation adjustments in global banking and markets of $196m, while the adverse impact of hyperinflation accounting in Argentina in the third quarter was $132m, compared with $304m at the same time last year.
The bank’s reported operating expenses grew by 2%, due to significant items, and its adjusted operating expenses were ahead 0.8%, which the board said reflected cost discipline while continuing to invest.
Its reported change in expected credit losses increased by $0.4bn, mainly on unsecured lending in retail banking and wealth management, and higher charges in commercial banking in the UK and Hong Kong.
Expected credit losses in the third quarter included a charge to reflect the economic outlook in Hong Kong.
For the first nine months of the year, HSBC said reported profit before tax was up 4% to $17.2bn, including an $828m dilution gain recognised in Saudi Arabia, customer redress provisions of $1.2bn, and $407m of severance costs.
Adjusted profit before tax was ahead $50m at $17.9bn.
Reported revenue rose 4% for the first nine months, and adjusted revenue grew by 4.8%, which HSBC said reflected “strong performances” in retail banking and wealth management, and commercial banking, notably in the first half of 2019.
Adjusted revenue in global banking and markets was down 7%, from lower market activity as a result of ongoing economic uncertainty.
The company’s reported operating expenses were down 1%, and its adjusted operating expenses were up by 2.6%, which was a slower growth rate than the 5.6% it reported at the 2018 full-year, while the board said it had continued to invest.
It reported positive adjusted jaws for the first nine months of 2.2%, while earnings per share stood at 57 cents, and first nine months return on tangible equity, annualised, was 9.5%.
Looking ahead, HSBC said the revenue environment was more challenging than in the first half of 2019, and the outlook for revenue growth was softer than it anticipated at the half-year.
As a result, it said it no longer expected to reach our return on tangible equity target of more than 11% in 2020.
It said it would act to rebalance its capital away from low-return businesses and adjust the cost base in line with the actions it was taking.
Those actions, or any continuing deterioration in the revenue environment, could result in significant charges in the fourth quarter and subsequent periods, the board warned, including the possible impairment of goodwill and additional restructuring charges.
Addressing low-return businesses and reducing risk-weighted assets would allow the redeployment of capital and resources into higher growth and return opportunities.
HSBC said it intended to sustain the dividend and maintain a common equity tier 1 ratio of above 14%.
“Parts of our business, especially Asia, held up well in a challenging environment in the third quarter,” said group chief executive officer Noel Quinn.
“However, in some parts, performance was not acceptable, principally business activities within continental Europe, the non-ring-fenced bank in the UK, and the US.”
Quinn said the company’s previous plans were “no longer sufficient” to improve performance for those businesses, given the softer outlook for revenue growth.
“We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities.”
As at 0932 GMT, shares in HSBC were down 4.07% in London, at 592.5p.