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HSBC profits miss expectations

20th Feb 18 9:20 am

Here’s why

HSBC posted $21 billion of adjusted profit before tax in 2017. 11 per cent up on the previous year, but below analyst expectations.

Adjusted revenue grew 5 per cent to $51.5 billion.

HSBC has achieved $6.1 billion of annual savings since 2015.

The annual dividend was maintained at $0.51 per share. Share buybacks will be performed as and when appropriate.

Over 75 per cent of HSBC’s profits now come from Asia.

Outgoing CEO Stuart Gulliver now hands over to new boss John Flint.

The share price fell 4 per cent in early morning trading,

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘Rising interest rates and a thriving global economy have helped HSBC to post a healthy increase in profits in 2017. However the market was expecting more, and has consequently marked down the share price. That’s not going to help the Footsie, given the gravitational pull HSBC exerts on the index.

Revenues have risen faster than costs across HSBC’s three core businesses, and when you’re as big as HSBC, that leaves you with some pretty big numbers in the bottom line. HSBC has stripped out $6.1 billion of annual costs since 2015, that’s the size of a big FTSE 250 company.

HSBC has definitely pinned its flag to the Asian mast, with over three quarters of profits now coming from the far east. The long term appeal of this approach is clear, with the Asian middle class set to balloon by a staggering 2 billion people by 2050.

However this approach comes with risks attached. The strength of HSBC’s share price over the last two years has a lot to do with better than expected economic performance from China. That’s all well and good, but this cuts both ways, and looking forward if China sneezes, HSBC is going to catch a nasty cold.

Stuart Gulliver, the outgoing CEO, is signing off with a positive set of results, after providing decent returns to investors through his tenure, mainly through dividends. It’s not been plain sailing by any means, and he deserves credit for steering the bank though some difficult waters, not least the money laundering scandal which cost the bank $1.9 billion in fines and a deferred prosecution agreement with US authorities which has only just ended.

There are some sour notes in HSBC’s latest results. While profits are growing, they are behind analyst forecasts, which goes some way to explaining the stock price reaction. Similarly no further details of share buybacks emerged beyond a rather woolly promise to offer such a scheme as and when appropriate. That’s not unreasonable given the change of leadership at HSBC, but having received $5.5 billion in share buybacks since 2016, shareholders were probably anticipating a bit more gravy.

The dividend is maintained in dollar terms, but not increased. That’s as expected, though the weakness of the dollar means at current exchange rates, sterling based investors face a lower income from HSBC in 2018.

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