Noel Quinn chose the right time to intensify a pivot to Asia. The strategy led by the chief executive of HSBC has coincided with a sharp increase in billionaires in the region over the past two years, delivering a big boost to profits. But shares of the Asia-focused lender are about to be shaken by bigger forces.
Pre-tax profits almost doubled to $2.7bn in the fourth quarter as the London-listed lender sold its retail business in France and focused resources on its wealth management business. This accounted for the biggest portion of its revenue. Net interest income rose. Costs fell 8 per cent.
Quinn’s promise to deliver a return on tangible equity of 10 per cent for 2023 sounds more achievable than for regional peers with the same target. HSBC’s return on tangible equity was 8.3 per cent last year, up from 3.1 per cent the year before.
Yet despite a jump in full-year earnings, adjusted revenue fell. For the year, pre-tax profit missed expectations. A $451mn charge against Chinese property exposure, which totals about $20bn, shows that HSBC cannot escape the sector’s mounting woes. Fresh default warnings from Chinese developers in the past week suggest the worst is yet to come.
A bigger threat to the outlook is China’s extreme curbs on distancing and travel. This makes it trickier and costlier to hire and retain talent. The restrictions are driving well-off expatriates and locals out of Hong Kong. The result could be a hit to HSBC’s wealth management client base. All that is before investors account for the broader political risks HSBC remains exposed to.
Six months ago, a share buyback of as much as $1bn would have given the shares a big lift. The stock remained flat after HSBC announced that addition to its current $2bn programme of stock repurchases. HSBC shares have risen 50 per cent from a September low, and are now looking pricey. The stock trades just below tangible book value, almost double global peers such as Standard Chartered and MUFG according to Bloomberg. Given the risks, the shares are correspondingly less attractive.
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