HSBC quarterly profits tumble 80% after $3bn charge on Chinese bank stake

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HSBC’s pre-tax profits fell 80 per cent year on year in the final three months of 2023 as it took a $3bn charge on the value of its stake in a Chinese bank and a further write down on commercial real estate, underlining how the country’s struggling economy is hitting lenders.

Profits for the fourth quarter declined to $1bn from $5bn a year earlier, HSBC said on Wednesday. Its pre-tax profits for the full year rose 78 per cent to $30bn, as higher interest rates buoyed the lender, but missed analysts’ expectations of $34bn.

HSBC said that the Bank of Communications impairment was “in line with recent market-wide developments in mainland China” but that BoCom “remains a strong partner”. The UK-based lender, which earns most of its profits in Asia and holds a 19 per cent stake in the Chinese bank, said its “positive views on the medium- and long-term structural growth opportunities in mainland China are unchanged”.

HSBC’s Hong Kong-listed shares fell as much as 3.8 per cent on Wednesday after the earnings release.

The results underscore how banks are taking a hit on their China exposure as growth slows in the world’s second-biggest economy. In October, HSBC’s rival Standard Chartered took a $700mn impairment charge on its investment in China Bohai Bank, a mainland lender. 

Weak consumer confidence is prompting Beijing to look at more ways to stimulate the economy, which is also experiencing a long-running property crisis that has left many developers saddled with debt.

HSBC made $3.4bn in provisions to cover expected credit losses for the full year and said $1bn of this was due to its exposure to commercial property in mainland China.

The bank said its chief executive Noel Quinn’s total pay package had jumped from £5.6mn to £10.6mn because of payouts from a long-term incentive plan.

The size of the payment reflected Quinn’s “leadership in reshaping the [bank] to deliver more sustainable returns to shareholders”, HSBC said, though it noted that it took Quinn’s pay to 169 times that of the average UK HSBC employee, up from 95 times last year. The bank’s total bonus pool rose 12 per cent to $3.8bn.

Rival Barclays on Tuesday cut its bonus pool and the pay package of its chief executive CS Venkatakrishnan, after a tough year for its investment bank. By contrast, Wall Street banks Goldman Sachs, JPMorgan Chase and Morgan Stanley have all disclosed pay rises for their chief executives. 

HSBC announced a further share buyback worth up to $2bn and a 31 cents a share dividend for the quarter. Quinn said the payouts to shareholders reflected “four years of hard work and the strength of our balance sheet in a higher interest rate environment”.

He added: “The outlook currently remains uncertain, however, and many of our customers remain concerned about their finances.”

The bank’s net interest margin, a crucial measure of lending profitability, rose to 1.66 per cent for the full year, as the bank benefited from higher interest rates. HSBC is one of the world’s largest deposit-taking institutions, making it particularly sensitive to interest rates.

The bank said it expected net interest income of at least $41bn for 2024, up from $36bn in 2023.

Its return on tangible equity, a measure of profitability, was 14.6 per cent for the year, up from 10 per cent a year earlier but missing analysts’ estimates of 17 per cent.

Additional reporting by Hudson Lockett in Hong Kong

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