HSBC, one of the world’s largest banks, reported an 80% year-on-year decline in pre-tax profits for the final quarter of 2023. The sharp drop, totaling $1bn compared to $5bn the previous year, is attributed to a $3bn charge on the value of its stake in a Chinese bank, along with additional write-downs on commercial real estate.
HSBC holds a 19% stake in the Bank of Communications (BoCom), and the impairment charge is linked to the challenging economic conditions in China. Despite the setback, HSBC expressed confidence in the long-term growth opportunities in mainland China and emphasized BoCom as a strong partner.
The bank’s full-year pre-tax profits rose by 78% to $30bn, buoyed by higher interest rates. However, this fell short of analysts’ expectations of $34bn. The challenging economic environment in China, with a slowing economy and a prolonged property crisis, has impacted banks with exposure to the country.
HSBC made provisions of $3.4bn to cover expected credit losses for the year, with $1bn attributed to its exposure to commercial property in mainland China. The weak consumer confidence and economic challenges in China have prompted banks to reassess their strategies and financial provisions.
HSBC also announced a share buyback of up to $2bn and a dividend of 31 cents per share for the quarter. The bank’s CEO, Noel Quinn, saw his total pay package increase from £5.6mn to £10.6mn, reflecting payouts from a long-term incentive plan. The bank noted Quinn’s leadership in reshaping the bank for sustainable returns, although his pay is now 169 times that of the average UK HSBC employee.
The bank’s net interest margin, a crucial measure of lending profitability, rose to 1.66% for the full year, benefiting from higher interest rates. HSBC anticipates net interest income of at least $41bn for 2024, up from $36bn in 2023. However, the return on tangible equity, a key profitability measure, was 14.6%, missing analysts’ estimates of 17%. Despite challenges, HSBC remains focused on navigating uncertainties and delivering value to shareholders in the evolving economic landscape.
