HSBC Has Quarterly Loss on Lending Income, Bad-Loan Charges

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Stephen Morris

HSBC Holdings Plc, Europe’s largest bank, posted a fourth-quarter loss as income from lending fell, loan-impairment charges increased and it booked fair-value losses on its debt.

The lender’s shares erased earlier gains in Hong Kong on Monday after the bank reported in an exchange statement a pretax loss of $858 million, compared with a profit of $1.73 billion a year earlier. Analysts surveyed by Bloomberg on average forecast a $1.95 billion profit for the quarter.

The result, depressed in part by the rising cost of bad loans to oil and gas companies, marks a setback to Chief Executive Officer Stuart Gulliver’s efforts to bolster profitability and reverse a share slump. In June, the CEO unveiled a new strategy to boost investment in Asia, exit unprofitable countries and cut as many as 25,000 jobs to help save as much as $5 billion by the end of 2017.

“There is a lot to do to achieve our targets but we have made a good start,” Gulliver said in the earnings release. He said HSBC reduced risk-weighted assets by $124 billion last year, taking it almost half-way toward the target for the end of 2017.

Shares in HSBC lost 1.7 percent to HK$49.40 at 2:28 p.m. in Hong Kong after advancing as much as 2 percent earlier in the day. The stock has slumped 20 percent this year, underperforming the benchmark Hang Seng Index’s 11 percent drop.

Revenue in the fourth quarter tumbled 18 percent to $11.8 billion as net interest income fell to $8.1 billion. Revenue was also hurt by expenses related to losses on hedging, according to HSBC spokesman Gareth Hewett. Impairments on bad loans and credit-risk provisions increased by 32 percent to $1.64 billion. That took full-year charges to $3.7 billion, exceeding the consensus analyst estimate of $3 billion.

“Income was a big miss,” Sanford C. Bernstein analysts led by Chirantan Barua wrote in a note. “The earnings outlook for the bank remains muted.”

The increase in bad-loan charges in HSBC’s wholesale banking division was driven by the oil and gas sector, where companies have been battered by the commodities slump. Wholesale banking accounted for almost $1 billion of loan impairment charges in the quarter, according to an HSBC presentation that accompanied the earnings.

Main Challenge

The bank declared a dividend of 21 cents for the fourth quarter. Operating costs in the period amounted to $11.5 billion, down from $11.9 billion a year earlier. Its end-point common equity Tier 1 capital ratio rose to 11.9 percent from 11.1 percent a year earlier.

“Maintaining these trends while boosting revenue will be the principal challenge in the year ahead,” Gulliver said in the statement, as he warned of an “uncertain” economic environment.

Gulliver’s task of turning HSBC around has also been complicated by a slowdown in China, a key element of his “pivot to Asia” strategy. Last week, Gulliver said China’s cooling economy means he may slow the pace of hiring in the Pearl River Delta, where he’s announced plans to add some 4,000 jobs in coming years.

Earlier this month, the board decided to keep the bank’s headquarters in London, favoring the British capital over its ancestral home of Hong Kong, after obtaining concessions from the U.K. government on regulation and taxes.

Underscoring the difficulty of selling bank assets, HSBC also said it will retain and restructure its unprofitable Turkish unit. The bank had received a number of offers for the business since June, none of which “were deemed to be in the best interests of our shareholders,” Gulliver said.

 

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