HSBC led the London market lower on Wednesday after a $3 billion hit to its operations in China saw the banking giant’s quarterly profits dive 80%.
Shares in the U.K.-based lender which makes most of its earnings in Asia, fell 7% after saying it would take a $3 billion impairment on its stake in China’s Bank of Communications.
HSBC also said it would also add $200 million to its reserves to cover expected credit losses from commercial property in mainland China, taking the 2023 total to $1 billion.
The charges left profits for the fourth quarter of 2023 at $1 billion, down from $5 billion for the same three months in 2022. However, higher interest rates helped HSBC to a full year 2023 record pre-tax profit of $30 billion, up 78% from the previous year — though this was below analysts’ forecasts of $34 billion.
HSBC’s exposure to China comes at a time when the world’s second-biggest economy is facing slow growth amid weak consumer sentiment as the once booming property sector continues to deflate.
However, HSBC CEO Noel Quinn, said the bank was “a committed investor into China . . . and [we] remain confident on the economy.”
“Exposure to Asia has given HSBC a different growth profile than its U.K.-focused counterparts but it brings risk too and that is writ large in its fourth quarter and full year results,” said Danni Hewson, head of financial analysis at AJ Bell.
“It is worth saying that the write downs announced today are accounting decisions and have zero impact on HSBC’s capital ratios or ability to dole out cash to shareholders,” added Hewson, as she noted that the lender also announced a $2 billion share buyback.
Alistair Ryan, analyst at Bank of America, was also sanguine about the “one-time charges” and welcomed HSBC’s investment for growth across Asia and in the U.K.
With a buy rating and a share price target of 760p, Ryan said: “we think investment and franchise sets the bank apart from peers…In the near term, a 6x PE and 8% ordinary dividend yield are complemented by additional distributions.”
Nevertheless, the slide in HSBC shares left the FTSE 100 in London on the back foot, nursing a 0.8% fall as a number of poorly received results weighed on the blue-chip barometer.
Shares of Glencore fell more than 3% after the commodity trader slashed its dividend as falling coal and gas prices caused profits to halve in 2023.
BAE Systems stock dropped 3% after the defense group’s positive forecasts could not quite match the optimism that recently pushed its shares to a record high.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, remained positive on BAE, noting that 42% of its sales came from the U.S. last year, making it the largest single contributor.
“On an absolute basis, U.S. military spending trumps any other country in the world, so having a large exposure here is proving very beneficial and has helped the group bring in a record £37.7bn worth of orders in 2023.”
Elsewhere in Europe the mood was more upbeat, with Frankfurt’s DAX up 0.4% and the CAC 40 in Paris adding 0.2%.
There was little movement in the euro and pound as traders waited for the Federal Reserve minutes to be released after the European markets close.
