The market is a strange beast. In recent weeks we’ve seen share prices fall on better-than-expected results. Now, with HSBC, we’ve got a rising share price on some worse-than-expected figures.
HSBC missed market forecasts on dividends and the CET1 ratio. Investors instead focused on second quarter pre-tax profit being better than expected and positive messages from the boardroom that net interest income has stabilised.
“Banks are now at a major turning point and what really matters is the speed and scale of the economic recovery,” says AJ Bell’s Russ Mould.
“During the various lockdowns, consumers saved significant amounts of money while banks were overly cautious and made provisions for big losses on potential bad debts.
“That dynamic could start to unravel, with consumers spending their spare cash which would help to drive economic growth, and banks have begun releasing some of their bad debt provisions which weren’t needed after all. The latter effect has been a key contributor to some of the banks’ earnings this year, including HSBC.
“Going forward, banks’ earnings will need to be driven by more traditional means, namely making more money from the interest charged on loans and credit cards than paid out on savings deposits.
“HSBC is also pushing its commercial banking and wealth management operations to make money, the latter particularly in Asia. At the same time, it is trying to fight off competition from both traditional and challenger banks by embracing new technology-led services. For example, in the UK, it has recently launched a mobile banking service for business customers.
“Any setback to the economic recovery from the pandemic would create major headwinds for HSBC and other banks. The continued spread of the Delta variant, the imminent end of the UK furlough scheme, and general ongoing uncertainty among many businesses would suggest the banking sector is not in the safe zone just yet.”
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