LONDON – HSBC, a UK-based banking conglomerate that primarily operates in Asia, saw an 80% drop in pre-tax profits in the last three months of 2023. This significant decline was attributed to a $3 billion charge on the value of its stake in a Chinese bank and further write-downs on commercial real estate. The bank’s profits for the fourth quarter shrank to $1 billion from $5 billion the previous year. While the full-year pre-tax profits rose 78% to $30 billion, it fell short of analysts’ expectations of $34 billion.
The impairment charge on its stake in Bank of Communications in mainland China reflected the challenges faced by global banks with significant exposure to the Chinese market. The bank’s Hong Kong-listed shares dropped by as much as 3.8% following the announcement of the earnings.
Additionally, HSBC made $3.4 billion in provisions to cover expected credit losses for the full year, with $1 billion of this amount attributed to its exposure to commercial property in mainland China. The bank announced a 31 cents per share dividend for the quarter and unveiled a further share buyback worth up to $2 billion. HSBC’s chief executive, Noel Quinn, saw a significant increase in his total pay package, from £5.6 million to £10.6 million, due to payouts from a long-term incentive plan.
The bank also revealed its net interest margin rose to 1.66% for the full year, a crucial measure of lending profitability. This increase was attributed to HSBC benefiting from higher interest rates. The bank projected net interest income of at least $41 billion for 2024, up from $36 billion in 2023. However, its return on tangible equity, a measure of profitability, fell short of analysts’ estimates at 14.6% for the year, up from 10% a year earlier.
The results underscore the impact of the slowing growth in the Chinese economy on global banks with significant exposure to the market, as consumer confidence in China weakens. As HSBC navigates these challenges, it remains committed to its long-term confidence in the structural growth opportunities in mainland China.
Ultimately, HSBC’s performance reflects the broader challenges faced by global banks in navigating market volatility and economic uncertainties, especially in China. As the bank continues to grapple with these issues, its approach to managing its China exposure will be closely watched by investors and industry experts alike.