HSBC Signals a Peak In Windfall Profits Amid Interest Rates Hike

HSBC Signals a Peak In Windfall Profits Amid Interest Rates Hike HSBC logo on a skyscraper | Image: Pixabay

HSBC Signals a Peak In Windfall Profits Amid Interest Rates Hike HSBC logo on a skyscraper | Image: Pixabay

HSBC, Europe’s largest bank, posted a record rise of 92 per cent in its quarterly profits and promised frequent dividends and share buyback programs. But, the bank cooled off all the investors’ presumptions of a higher income benefit from the constant surge in the global interest rates.

From the proceeds of the sale of its business in Canada for $10.04 billion to the Royal Bank of Canada, the bank had said that it might pay a one-off dividend to its shareholders. The bank headquartered in London has announced that it would distribute a special dividend of $0.21 per share.

The bank’s shares tanked 2 per cent in Hong Kong as investors played upon the income predictions from experts that came out to be modest amidst the high-interest rates scenario. They paid no heed to the special dividend announced by the bank.

The bank has said it expects a bare minimum of $36 billion in net interest income in 2023. This is just slightly short of the predicted $37 billion. This also fell short of the analyst’s estimated annualised value of $38 billion from the bank’s most recent quarterly statistics.

It is a noticeable fact that the London headquartered bank gains way more than most smaller banks when the central bank increases rates. It enjoys this special privilege due to its massive customer deposits of $1.3 trillion, which allows it to levy higher margins on sanctioned loans and mortgages.

Noel Paul Quinn, Chief Executive Officer of HSBC, said that they are at peace with the consensus being around $37 billion and are not planning to alter that anytime soon. 

Quinn also stated that one of the reasons for the moderate estimations was the constant compulsion to increase deposit rates by the rival companies.

HSBCs shares trading on the London Stock Exchange is hovering around its peak of the past three and a half years. The latest dump in the stock came in October of 2022 when it crashed nearly 7 per cent on the grounds of a lower-than-expected fall in quarterly profits. Some investors panicked at the news of an instantaneous new posting of its chief financial officer Georges Elhedry.  

HSBC has primarily focused on the Asian region, with Hong Kong being its largest market. It has said that it would reconsider the buyback of new shares in the first quarter of 2023 and resume dividend payouts quarterly.

Ping An Insurance Group, a Chinese holding conglomerate and also the largest shareholder, has been insisting on creating a separate division for its Asian businesses in order to increase returns. HSBC has refused to implement this strategy and is working towards strengthening its investor relations.

Heated Environment

The current CEO, Quinn, is choked amidst the cost-cutting reforms the bank is taking. He is leading the ongoing layoff tasks of skimming the unwanted complex management hierarchy of the bank. 

He has said they are very strict on cutting expenditures and are focused on shedding off $300 million of additional unproductive costs in 2023.

HSBC has announced its expectation of annual credit losses, which has risen to $3.6 billion. In contrast, the analysts’ predictions were short to $3.2 billion. These estimated losses have resulted from the brewing Chinese real estate crisis and crippled borrowers due to higher inflation. 

The sale of its retail banking operations in France had wreckage of $2.4 billion. This destruction lowered the annual profit from $18.9 billion to $17.5 billion for 2021, despite the increment in the profits of the fourth quarter.

It was such a coincidence that the average estimates of 22 analysts put together by the bank equalled 17.5 billion in profits.

HSBC is still looking forward to the sale of its Russian business operations in spite of bearing a loss of $300 million on the deal. It expects this deal to be completed in the early few months of 2023.

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