HSBC's Q4 Pre-Tax Earnings Up On Higher Revenues, Costs Rise

HSBC Holdings (LON:HSBA) (NYSE:HSBC) recorded fourth-quarter 2018 pre-tax profit of $3.3 billion, up 41.3% year over year. The increase was due to rise in revenues.

Further, net income attributable to shareholders was $1.5 billion against net loss of $274 million in the prior-year quarter.

During pre-market trading, HSBC’s shares lost 4.1% on the NYSE. Notably, the actual picture will emerge after the full day’s trading session.

Results benefited from improvement in revenues. On the other hand, rise in operating expenses as the company continued to invest in growth programs acted as a headwind.

Revenues Improve, Expenses Rise

Adjusted total revenues of $12.8 billion grew 5.5% year over year. The upswing mainly reflects higher net interest income and other income, partially offset by decline in net fee income.

Adjusted total operating expenses rose 1.4% from the prior-year quarter to $8.9 billion. This underlines rise in investments for business growth programs.

Quarterly Performance by Business Lines

Retail Banking and Wealth Management: The segment reported $1.3 billion in pre-tax profit, up 17.8% year over year. This upside was driven by higher revenues and lower operating expenses.

Commercial Banking: The segment reported pre-tax profit of $1.7 billion, increasing 8.2% from the year-ago quarter. The rise largely stemmed from solid revenues.

Global Banking and Markets: Pre-tax profit of $777 million for the segment jumped 39.2% from the prior-year quarter. The increase was primarily due to lower operating expenses.

Global Private Banking: Pre-tax profit for the segment was $66 million against pre-tax loss of $91 million in the year-ago quarter. The improvement was largely due to declining expenses.

Corporate Centre: The segment incurred a pre-tax loss of $610 million, improving from pre-tax loss of $856 million in the prior-year quarter. Increase in revenues and lower expenses were largely responsible for the improved performance.

Capital Ratios Deteriorate

Common equity Tier 1 ratio (transitional) as of Dec 31, 2018, was 14.0%, down from 14.5% as of Dec 31, 2017. Further, leverage ratio was 5.5%, down from 5.6% as of Dec 31, 2017.

Our Viewpoint

By disposing of unprofitable/non-core operations, HSBC has been successful in enhancing efficiency. However, weak European and Chinese economies, low loan demand, Brexit-related uncertainty and litigation expenses will continue to curb the bank’s near-term growth. Furthermore, mounting operating expenses are expected to impede its bottom-line performance to some extent.

Currently, HSBC has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Foreign Banks

Barclays (NYSE:BCS) is scheduled to report results on Feb 21 while both Canadian Imperial Bank of Commerce (TO:CM) and The Toronto-Dominion Bank (TO:TD) will report on Feb 28.

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