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HSBC Faces Steepest Share Drop Since 2020 As Profits Drop 80% 

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HSBC CEO Noel Quinn expresses confidence in China's real estate sector, emphasizing a progressive recovery and the necessity of time to address challenges. 

Image Source: Bloomberg on X
HSBC CEO Noel Quinn expresses confidence in China’s real estate sector, emphasizing a progressive recovery and the necessity of time to address challenges. 
Image Source: Bloomberg on X 

HSBC witnessed its most substantial share decline since 2020 following an 80% drop in quarterly profit and a USD 3 billion charge on its stake in a Chinese bank. The bank reported pre-tax profits of USD 1 billion for the final quarter of 2023, down from USD 5 billion the previous year.  

Despite a 78% rise in full-year pre-tax profits to USD 30 billion, driven by higher interest rates, the disappointing year-end performance fell short of analysts’ expectations of USD 34 billion. 

CEO Noel Quinn attributed the Bank of Communications impairment to a “technical accounting adjustment” and said that it “does not affect our view on China at all; we’re a committed investor into China . . . and remain confident on the economy”. The bank forecasts that it will expand by 4.9 per cent in 2024. 

HSBC, earning most of its profits in Asia with a 19% stake in BoCom, faces challenges similar to its rival, Standard Chartered, which reported a USD 700 million impairment charge on its investment in China Bohai Bank. Citigroup analyst Andrew Coombs described the fourth quarter as “messy” due to various one-off factors, including a GBP 500 million (USD 631 million) charge for hyperinflation in Argentina and a USD 2 billion writedown on the sale of its French retail network, along with USD 300 million of impairments related to unsecured lending in Mexico. 

HSBC forecasted lower net interest income for 2024, reflecting signals from the US Federal Reserve and the Bank of England indicating possible interest rate cuts. The results highlight the impact of slowing growth in China, with concerns exacerbated by the country reporting its smallest annual foreign direct investment since the 1990s last year. To cover expected credit losses in mainland China’s commercial property, HSBC added USD 200 million to its reserves, bringing the total to USD 1 billion for 2023. 

Quinn, despite challenges in China’s real estate sector, expressed confidence in the market’s progressive recovery, acknowledging the need for time to navigate through challenges. The bank reported Quinn’s total pay package jumping from GBP 5.6 million (USD 7 million) to GBP 10.6 million (USD 13.39 million) due to long-term incentive plan payouts.  

Reflecting on Quinn’s leadership, HSBC noted the award’s size, which increased Quinn’s pay to 169 times that of the average UK HSBC employee, up from 95 times the previous year. The bank’s total bonus pool rose 12% to USD 3.8 billion. 

In contrast to Barclays, which reduced its bonus pool and CEO pay after a challenging year for its investment bank, Wall Street banks, including Goldman Sachs, JPMorgan Chase, and Morgan Stanley, increased their chief executives’ pay. HSBC announced a USD 2 billion share buyback and a 31 cents per share dividend for the quarter. Shareholder distributions, including the highest full-year dividend since 2008, amounting to 61 cents per share, reflected the bank’s strength in a higher interest rate environment, according to Quinn. 

Georges Elhedery, HSBC’s chief financial officer, expressed the bank’s intent to pursue a rolling series of share buybacks if conditions were right. The bank’s net interest margin rose to 1.66% for the full year due to higher interest rates, making it particularly responsive to changes in interest rates as one of the world’s largest deposit-taking institutions. HSBC projected a net interest income of at least USD 41 billion for 2024, up from USD 36 billion in 2023. Despite a rise in return on tangible equity to 14.6% for the year, up from 10% the previous year, it fell short of analysts’ estimates of 17%. 

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