HSBC’s second-quarter pre-tax profit down year-on-year despite revenue growth

HSBC Holdings HSBC reported pretax profit of $5 billion in the second quarter of 2022, down 1% from the year-ago quarter.

The results reflected an increase in adjusted revenues. Adjusted expenses decreased slightly from the prior year quarter. Expected credit losses and other credit impairment (ECL) charges were a net charge in the quarter under review compared to a recovery in the prior year quarter, which was a headwind.

Adjusted revenue increases, expenses decrease slightly

Adjusted total revenue of $13.1 billion increased 11.6% year over year. Reported revenue rose 1.6% year over year to $12.8 billion.

Adjusted operating expenses fell slightly year over year to $7.5 billion. The impact of the company’s cost reduction initiatives and continued cost discipline mitigated the increase in capex and inflation.

In the quarter under review, reported ECLs were a charge of $0.4 billion compared to a net release of $0.3 billion in the prior year quarter.

The Common Equity Tier 1 (CET1) ratio as of June 30, 2022 was 13.6%, compared to 15.6% recorded as of June 30, 2021. The leverage ratio was 5.5%, compared to 5.3% at the end of June 2021 .

Quarterly performance by business line

Wealth management and personal banking: The segment reported a pre-tax profit of $1.8 billion, down 1.9% from the same period a year earlier. The decline is due to lower revenues.

The Commercial Bank: The segment reported pretax profit of $1.7 billion, up 10.5% from the prior year quarter. Lower spending and higher income supported the rise.

Global Banking and Markets: Pretax profit was $1.7 billion, up 36.9% from the end of the prior year quarter. The increase was mainly driven by higher incomes.

Corporate Center: The segment reported a pre-tax loss of $0.2 billion compared to a pre-tax profit of $0.5 billion in the prior year quarter.

Dividend Update

HSBC’s board of directors has approved an interim cash dividend of 9 cents per share for the first half of 2022.

Outlook

Based on the current market consensus on global central bank rates and HSBC’s continued single-digit percentage loan growth forecast for 2022, the company expects net interest income of at least 31 billion dollars for 2022 and at least 37 billion dollars for 2023.

Adjusted operating expenses for 2022 are expected to be in line with those reported in 2021 despite inflationary pressures. For 2023, year-over-year adjusted cost growth of 2% is projected. HSBC intends to maintain strict cost discipline going forward.

Given the current economic consensus and default experience, the company expects ECL charges to normalize toward 30 basis points of average loans in 2022.
Management expects to achieve a return on tangible equity of 12% or more from 2023.

The CET1 ratio is expected to be between 14% and 14.5% in the first half of 2023. The planned divestiture of HSBC’s French retail business is expected to negatively impact the CET1 ratio by 30 basis points in the second half of 2022.

Management expects mid-single-digit growth in risk-weighted assets (RWA) in 2022 through a combination of business growth, acquisitions and regulatory changes, partially offset by additional RWA savings. RWA savings are expected to reach over $120 billion by the end of 2022.

HSBC expects a dividend payout ratio of 50% for 2023 and 2024. It also intends to return to paying quarterly dividends in 2023, although quarterly dividends for the first three quarters are likely to be initially restored to a level below the historical quarterly dividend. of 10 cents per share.

Our point of view

HSBC’s strong capital position, initiatives to build digital capabilities, extensive network and efforts to improve operational efficiency through business restructuring plans should support financials. Exiting retail banking activities in the United States and France will help HSBC to focus on Asia.

HSBC Holdings plc price, consensus and EPS surprise

HSBC Holdings plc price-consensus-eps-surprise-chart | Listing of HSBC Holdings plc

Currently, HSBC carries a Zacks rank #2 (buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other foreign banks

ICICI BankIBN’s net profit for the first quarter of FY2023 (ended June 30, 2022) was INR 69.05 billion ($874 million), up 50% from the fiscal quarter. ‘last year.

ICICI’s results were boosted by higher net interest income, non-interest income and growth in loans and deposits. Provisions decreased during the quarter. However, rising operating expenses posed a headwind.

Barclays BCS reported second quarter 2022 net profit attributable to ordinary shareholders of £1.07 billion ($1.35 billion), down 47.7% from the prior year quarter .

Barclays’ results were hurt by higher spending. During the reported quarter, BCS recorded credit impairment charges on releases from the prior year quarter. Nevertheless, an increase in revenues helped the results to some extent.

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