HSBC profits plummet: This is how City analysts reacted
HSBC announced a 62 per cent decline in profits for 2016 this morning, dipping to $7.1bn (£5.7bn) from $18.9bn the year before.
Shares in the bank dropped 4.5 per cent at the open after HSBC revealed a series of one-off hits had eroded its bottom line last year.
Here's what the analysts had to say:
Shining example
Hargreaves Lansdown's Laith Khalaf noted that HSBC's share price has risen significantly over the last 12 months, despite earnings taking a hit – because of weaker sterling caused by the Brexit vote.
"The bank is a shining example of how the decline in sterling has bumped up the price of some of the UK’s largest companies, without much progress in underlying profits," Khalaf added.
"HSBC is the biggest single stock in the FTSE 100, and so millions of people across the UK will have a stake in the bank through their pension or their ISA. The reality is that for these investors the effect of currency translation is real and tangible. Weaker sterling has significantly lifted the value of their shareholding, and the dividends they receive in pounds and pence, and as we know it’s best not to look a gift horse in the mouth.
"Despite an underwhelming set of full year results, HSBC is making progress in de-risking and restructuring, and ultimately the bank’s focus on the far east could be its trump card if the Chinese economy starts to fire on all cylinders."
Sharp decline
Shore Capital analyst Gary Greenwood said he expected HSBC shares to fall sharply this morning, following the "disappointing set of results".
Reflecting on the stock's 70 per cent rise since April last year, Greenwood said the lender's increased confidence had been "driven by the prospect of higher US interest rates, which should directly benefit the group’s income generating capacity… given its surplus of dollar denominated deposits".
He added that this heightened confidence, alongside the bank's improving capital position, had enabled HSBC to carry out share buybacks and maintain its dividend.
Cushion effect
HSBC's decision to extend its share buyback – it announced a further $1bn programme in today's results – "will go some way to cushioning the hit to sentiment this morning", according to City Index analyst Ken Odeluga.
However, he added: "We think applause for the additional pay-out is somewhat muted in view of HSBC’s backsliding common equity tier one ratio."
The lender's common equity tier 1 capital gew to 13.6 per cent at the end of 2016, compared with 11.9 per cent at the end of 2015 – but this was down from 13.9 per cent in the third quarter of last year.
"It’s a modest retreat of regulatory capital, so direct consequences will be immaterial, but… the timing is unfortunate," Odeluga said.
Source: Statista