HSBC share run stumbles on writedowns, tough outlook

Tue Feb 21, 2017 8:48am EST
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By Sumeet Chatterjee and Lawrence White

HONG KONG/LONDON (Reuters) - HSBC's (HSBA.L: Quote) full-year profit slumped 62 percent and fell far short of forecasts on Tuesday as the bank took hefty writedowns from restructuring and flagged near-term brakes on revenue growth.

Shares in Europe's largest bank slid more than 7 percent after its revenues fell by a fifth from 2015, bringing an eight-month stock rise to a halt. Investors have driven HSBC's shares higher, betting on its ability to benefit from U.S. rate hikes.

HSBC made profit before tax of $7.1 billion in 2016 compared to $18.87 billion for the previous year, well below an average analyst estimate of $14.4 billion in Thomson Reuters data.

Despite the fall, HSBC announced a new $1 billion share buy-back, taking buy-backs since the second half of 2016 to $3.5 billion, as the bank returns cash to shareholders after the sale of its Brazil business last July in a $5.2 billion deal.

But the worse than expected profits took their toll on the bank's bonus pool, which it cut by 12 percent to $3 billion, and sets the stage for results this week from Lloyds (LLOY.L: Quote), Barclays (BARC.L: Quote), RBS (RBS.L: Quote) and Standard Chartered (STAN.L: Quote).

While HSBC is expected to benefit in the long run once interest rates rise worldwide, the one-off charges showed the toll its restructuring is taking on short term profits.

"The Brazilian disposal highlights the key problem for HSBC -- not only is the quality of the bank's earnings weak, as evidenced by yet another messy set of numbers...but the quantity is lacking as the lender is still trying to shrink itself back to health," said Russ Mould, investment director at online investment manager AJ Bell.

HSBC's core capital ratio -- a measure of its financial strength -- was 13.6 percent, against expectations of 13.8 percent, and the bank signalled a number of factors that would pressure its revenues in 2017, including a $500 million increase in regulatory capital costs, lower interest rates in Britain and adverse foreign exchange rates.   Continued...

A taxi drives past a branch of HSBC bank in London, Britain, February 9, 2015. REUTERS/Suzanne Plunkett/File Photo