HSBC profits fall short as fourth quarter market madness hits another banking giant
HSBC posted a 16 per cent annual profit rise but fell below expectations as market volatility hurt the bank in the final quarter.
Shares in the bank fell 3.3 per cent in early trading – the FTSE 100's sharpest faller – as it remained cautious on its outlook for 2019 due to Brexit uncertainty and the ongoing US-China trade war.
The figures
Pre-tax profit rose 16 per cent to $19.9bn (£15.4bn) for the full year, but was lower than analysts’ expectations of $22bn.
HSBC said revenue climbed to $53.8bn, a five per cent increase compared to 2017, driven by a rise in deposit revenue across its global businesses but particularly in Asia.
Return on tangible equity for shareholders rose to 8.6 per cent from 6.8 per cent the previous year.
But the bank’s adjusted jaws – a ratio measuring revenue against costs – was in the negative at -1.2 per cent.
Achieving positive jaws is seen as important for investors and banks as it shows that revenue growth is outpacing costs rates.
Why it’s interesting
HSBC blamed its failure to achieve “positive jaws” on market weakness in the fourth quarter – revenue fell eight per cent over the final three months of 2018 compared with the previous year.
The bank said: "Positive jaws remains an important discipline in delivering our financial targets and we remain committed to it in 2019."
The world’s major banks have all so far been impacted by the volatility seen across global markets at the end of last year.
What HSBC said
Chief executive John Flint said: “These are good results that demonstrate progress against the plan that I outlined in June 2018.
“Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017.
“This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020.”
What analysts said
Head of markets at interactive investor, Richard Hunter said: "A tough fourth quarter took its toll on some of the numbers, while a slowing Chinese economy, partially fuelled by the ongoing trade spat with the US, has yet fully to wash through.
"As such, 2019 could begin to see some real impact in an Asian region whose reported profits contribute almost 90% of the group total."
Steve Clayton, manager of Hargreaves Lansdown's select UK income shares fund, which holds a position in HSBC, said the results were "disappointing."
He said: "HSBC has always been a bank built around facilitating international trade between Asia and the rest of the World.
"Today’s tariff spats between the US and China are hardly helpful and could begin to hurt the group’s customers in Asia and beyond.
He added: "These results are disappointing, but a bank that has just reported underlying annual profits of almost $22bn and grown income, controlled costs and raised its return on equity can hardly be described as in crisis."