Shares in global banking giant HSBC (HSBA) fell 3.5% to 483p following the announcement of first quarter results that were ahead of expectations at the earnings level but disappointed the market from a capital perspective with no further share buybacks shceduled this year.
Reported profit before tax was down 28% year-on-year to $4.17 billion but was well ahead of the consensus estimate of $3.72 billion.
Net earnings were down 26% year-on year to $0.14 per share, but were ahead of the consensus of $0.11 per share.
However, the bank's Tier 1 equity ratio was down 1.7 percentage points at 14.1% against a consensus of 15%, limiting its scope to return capital to shareholders.
PIVOT TO ASIA
HSBC, which has a considerable footprint in China, warned 'lockdown restrictions in major Chinese cities have impacted China’s economy, Asia tourism and global supply chains adversely'.
Moreover, the group is suffering from decreased revenue and slowing growth in Hong Kong. Around two-thirds of the bank’s reported profit derives from Asia.
The increasing likelihood of further lockdowns impacting other parts of the mainland China triggered a global equity sell-off yesterday.
HSBC is making a major push in wealth management and commercial banking to generate double digit growth and has targeted Asian markets including Hong Kong, China and Singapore.
CREDIT CONCERNS
Investors will be acutely concerned that Britain’s largest lender has felt it necessary to put aside millions of pounds in anticipation of a rise in defaults.
The realignment of global supply chains, a resurgence of Covid and more recently the conflict in Ukraine have caused supply side shocks for fuel and food.
This has resulted in a surge in inflationary pressures. In Britain inflation is currently running at 7%, up from 6.2% in February.
Consumers are under immense financial pressure and HSBC believes this could result in a decline in borrowers’ credit worthiness.
Shore Capital analyst Gary Greenwood said ‘Despite the pull back, we reiterate our neutral stance, preferring a combination of Barclays, Lloyds and Standard Chartered as a better value alternative’.
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