HSBC CEO: We have a much healthier capital base and profit generation than before Covid

HSBC on Tuesday reported fourth-quarter earnings for 2022 that beat analyst expectations.

The bank’s reported profit before tax for the three months ended in December was $5.2 billion, 108% higher than $2.5 billion a year ago and better than the $4.97 billion expected in estimates compiled by the bank. HSBC said its fourth-quarter results reflect strong reported revenue growth and lower reported operating expenses.

For the full year, reported revenue was $51.73 billion, up from $49.55 billion in 2021. The bank’s reported profit before tax for 2022 fell to $17.53 billion from $18.91 billion a year ago. It said the 2022 reported pre-tax profit included a $2.4 billion impairment due to the planned sale of its retail banking operations in France.

HSBC, Europe’s largest bank by assets, said higher global interest rates support the firm’s confidence in achieving its target of at least 12% return on average tangible equity in 2023.

“We completed the first phase of our transformation and our international connectivity is now underpinned by good, broad-based profit generation around the world,” Noel Quinn, group chief executive said in the release.

“We are on track to deliver higher returns in 2023 and have built a platform for further value creation,” he said.

Banks globally have seen strong net interest income as central banks around the world raised rates to tame inflation. HSBC said it expects net interest income of at least $36 billion in 2023.

Hong Kong-listed shares of HSBC were about 1% lower before the release, but were nearly 2% lower in the afternoon.

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Here are other highlights of the bank’s financial report card:

  • Reported expected credit losses of $3.6 billion in 2022 reflect increased economic uncertainty, rising interest rates and developments for China’s property sector.
  • Net interest margin, a measure of lending profitability, rose 28 basis points to 1.48% in 2022, reflecting interest rate rises.
  • HSBC’s board approved a second interim dividend of 23 cents per share, making a total for 2022 of 32 cents per share.

Special dividend

In addition to its second interim dividend of 23 cents per share, the bank said it is considering a special dividend of 21 cents per share after it completes the sale of its banking business in Canada. HSBC said that payment would come in early 2024 if the deal closes as expected in late 2023.

HSBC said it is establishing a dividend payout ratio of 50% for 2023 and 2024.

Quinn said on CNBC’s “Capital Connection” that HSBC aims to reach pre-Covid levels of dividends within this year.

“The math gets you to an answer of about 50 cents of dividend in 2023, which is sort of pre-Covid levels,” said Quinn. “If we deliver on these promises this year, is that 50 cents is on a payout ratio of 50%.”

“What we now have is a much healthier balance of return generation in yields for our shareholders, plus an ability to retain profits for growth, and if that growth isn’t there, then we have buyback capacity as well,” he said.

Rosy outlook for China

Mark Tucker, HSBC’s group chairman, said the global economy still faces many macroeconomic headwinds.

“The pandemic, high inflation and interest rates, and the Russia-Ukraine war all have implications for the global economy, including volatility in markets, supply chain disruption, pressure on small and medium-sized business and squeezes on the cost of living,” he said in a statement.

“Different economies also now face different challenges and have different opportunities in 2023,” he said.

Tucker also reiterated HSBC economists’ forecast for China to grow 5% in 2023.

“The reopening of the border means that Hong Kong, and the entire Greater Bay Area, are likely to be major beneficiaries, and I expect to see a strong recovery,” he said.

“China’s reopening and package of measures to stabilize the property market should provide a significant boost for its economy and the global economy, albeit with some near-term volatility,” he said.

He said Europe, in contrast to Asia, will likely face headwinds on the rise of energy prices driven by Russia’s war on Ukraine. Tucker also said if the economy enters a recession that it will be relatively shallow.

“Overall, I am optimistic about the global economy in the second half of 2023, but there is still a high level of uncertainty due to the Russia-Ukraine war and recessionary fears may yet dominate much of the year ahead,” he said.

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