HSBC Holdings took a charge relating to its Chinese commercial real estate exposure and warned of a weaker performance in its wealth business in Asia, blemishing fourth-quarter results that saw the lender boost plans to return billions of dollars to investors.
The London-based bank will initiate a share buyback of as much as US$1 billion ($1.35 billion), on top of an earlier US$2 billion program, according to an earnings statement on Tuesday. The lender posted a 79% increase in adjusted pretax profit to about US$4 billion in the fourth quarter, roughly in line with company-compiled estimates.
The US$450 million impairment charge -- largely relating to offshore China commercial real estate exposures booked on its Hong Kong balance sheets -- was the result of local policy measures that had led to an increase in “refinancing risk and liquidity pressures,” CEO Noel Quinn said in a phone interview Tuesday. “Those market conditions have improved, to some extent, in the early part of 2022.”
CFO Ewen Stevenson added that the conditions weren’t a one-off, but were “eminently manageable.”
Separately, Quinn said in a broadly upbeat earnings statement that the lender carries “good business momentum” into 2022, but it expects a weaker wealth performance in Asia for the first quarter of this year.
The shares fell as much as 4% in Hong Kong trading.
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Asia Pivot
HSBC follows other global banks in boosting shareholder returns as rising interest rates buoy lending income. At the same time, the economic outlook is being clouded by factors including geopolitical tensions, inflation, and lingering effects of the pandemic including in HSBC’s key market of Hong Kong.
A year ago, HSBC unveiled a strategic refresh with its pivot to Asia. The strategy is focused on managing more and more of the wealth of Asia’s growing ranks of millionaires and billionaires, as well as the region’s mass affluent. The plan involves an investment of US$6 billion across Asia, targeting wealth, commercial banking and markets.
As part of its Asian expansion plans, the bank has been pursuing a series of bolt-on acquisitions. HSBC has already bought AXA Singapore for US$575 million, as well as the investment management unit of India’s L&T Finance Holdings Ltd for US$425 million. The company said in August it was eyeing three or four deals of about US$500 million each.
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The past years have been dominated by repeated restructurings that have included the cutting of 35,000 jobs, the relocation of senior executives from London to Hong Kong, and most recently coping with the fallout from the Covid-19 pandemic.
HSBC has been pointing to a brighter outlook in recent months. In October, CFO Stevenson said the bank’s revenues were at an inflection point, saying that central bank rate increases would provide a “material kicker” to the lender’s performance.
Shares in HSBC were up more than a fifth so far this year through Monday, buoyed by hopes that higher rates will mean greater profits. The bank also said it will pay a second-interim dividend of US$0.18 per share. The latest buyback will start after an earlier program announced in October to repurchase US$2 billion of shares has concluded.
The bank also said in its fourth-quarter results:
Net interest income of US$6.8 billion, up US$0.2 billion; costs of US$8.3 billion, down 8% against the previous period, mainly due to a lower bank levy and cost control; HSBC continues to target dividends within a 40% to 55% dividend payout ratio range.
Photo: HSBC
