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(Alliance News) - Asian-focused lender HSBC Holdings held its dividend on Monday despite third-quarter profit and revenue suffering amid "challenging" conditions, in particular within its European and US businesses.
For the three months ended September, pretax profit narrowed 18% to USD4.84 billion from USD5.92 billion the year prior. This was after operating income fell 3.2% to USD13.36 billion from USD13.80 billion the year before.
"Parts of our business, especially Asia, held up well in a challenging environment in the third quarter," HSBC Chief Executive Officer Noel Quinn said. "However, in some parts, performance was not acceptable, principally business activities within continental Europe, the non-ring-fenced bank in the UK, and the US."
In August, Quinn took the helm of HSBC after former CEO John Flint left the role after only a year and a half.
Return on tangible equity stood at 6.4% in 2019, lower than the 10.9% reported in 2018. The common equity tier one solvency ratio for HSBC in the third quarter of 2019 stood at 14.3%, unchanged on the year prior.
Adjusted jaws in 2019 fell to negative 2.4% from negative 1.6% the year prior. The jaws ratio - a key financial performance indicator - is the difference between the percentage growth in income and the percentage growth in expenses.
"Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth," Quinn added. "We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities."
Amid these "softer" conditions, HSBC now no longer expects return on equity of at least 11% to be achieved in 2020. The FTSE 100-listed firm will, therefore, focus on rebalancing its capital away from low-return businesses as well as adjust its cost base.
These changes could result in "significant" charges in the fourth quarter of 2019. Such costs would be related to goodwill impairments and additional restructuring charges.
Despite this, HSBC remained committed to a CET1 ratio above 14% and to "sustain" its dividend. For the third quarter, HSBC held its dividend unchanged at 10 US cents per share.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down 0.1% at 7,317.60
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Hang Seng: up 0.8% at 26,891.58
Nikkei 225: closed up 0.3% at 22,867.27
DJIA: closed up 152.32 points, 0.6%, at 26,958.06
S&P 500: closed up 0.4% at 3,022.55
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GBP: soft at USD1.2823 (USD1.2831)
EUR: flat at USD1.1090 (USD1.1081)
Gold: soft at USD1,507.37 per ounce (USD1,508.50)
Oil (Brent): flat at USD61.74 a barrel (USD61.69)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Monday's Key Economic Events still to come
Ireland October Bank Holiday.
1100 GMT UK CBI distributive trades survey
1000 CET EU monetary developments in euro area
0830 EDT US advance economic indicators report
0830 EDT US CFNAI Chicago Fed national activity index
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UK Prime Minister Boris Johnson will make a fresh push on Monday for an early election as EU leaders prepare to back yet another Brexit delay, just days before the departure deadline. Johnson was forced to abandon his promise to leave the EU on October 31, after members of parliament demanded he ask for more time while they debate the divorce terms he struck with Brussels. EU ambassadors will meet early Monday to discuss his request to delay Brexit until January 31, under a plan that would allow Britain to leave earlier if parliament ratifies the exit deal, Brussels sources said. Member states have already accepted a delay in principle to avoid the risk of a disorderly divorce, but some, mainly France, question how long it should be. Later Monday, Johnson will ask the House of Commons to vote on a snap election, which he wants to hold on December 12 – after MPs have had time to ratify his Brexit deal. However, he faces defeat, as with his two previous election calls. He needs the support of two-thirds of the 650 MPs, but does not have even a simple majority.
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Johnson will likely fail to secure "super majority" support for a December general election – but knows he will require 100 fewer MPs to grant the same request just 24 hours later. The prime minister's election bid on Monday, to be made under the Fixed-Term Parliaments Act, would require a two-thirds Commons majority – 434 MPs – to agree to an election on December 12. Labour's lack of support for the proposal means it is likely to be defeated when voted upon on Monday evening. But the Liberal Democrats and Scottish National Party have offered Johnson a way out of the deadlock. Johnson has already had two requests for an election refused. Lib Dem leader Jo Swinson and the SNP's Westminster leader Ian Blackford have put forward a tightly-drafted Bill that would grant an election on December 9 – three days earlier than the PM's suggested polling date – as long as the EU grant an extension until January 31. The draft law, currently scheduled for Tuesday's sitting, would require a simple majority of 320 MPs to support it in order to dissolve Parliament – 114 fewer than under the FTPA "super majority" rules. With the SNP and Lib Dems supporting the initiative, the Bill is likely to pass even without Labour backing.
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US President Donald Trump on Sunday said that the elusive leader of the Islamic State group, Abu Bakr al-Baghdadi, had been killed, dying "like a dog" in a daring nighttime raid by US special forces in northwest Syria. Trump told the nation in a televised address from the White House that US forces killed a "large number" of Islamic State group militants during the raid, which culminated with Baghdadi cornered in a tunnel, where he detonated a suicide vest. Baghdadi's death has been reported several times over the years. Trump said there was no doubt, however, saying a DNA field test had confirmed his identity. And Defense Secretary Mark Esper – who issued a statement hailing "a great day for America and a great day for the world" – told CNN the raiding team had both visual and DNA confirmation.
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Washington and Beijing are making "headway" on key issues in their ongoing trade dispute and discussions will continue, the US Trade Representative's office said following a phone call between senior officials. US President Donald Trump heralded a major win in his offensive against China two weeks ago, saying the economic powers were close to concluding a "substantial phase one deal." However the details were, and remain, scarce and the two sides have not announced rollbacks of existing tariffs on hundreds of billions of dollars in trade.
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China's Central Committee, a top ruling body, on Monday kicked off its "plenum", a closed-door meeting during which the country's leaders are set to discuss key policies for the year ahead and beyond, state media reported. This is the fourth time the roughly 370-person committee is meeting since the 2017 Communist Party Congress, which ushered in President Xi Jinping's second term in office. The meeting is set to take place behind closed doors until Thursday, when the state-run Xinhua news agency is expected to issue an official overview of what has been discussed.
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Thailand will lose its trade privileges with the US as a beneficiary developing country in six months' time, Washington said on Friday. "Thailand has yet to take steps to provide internationally recognized worker rights in a number of important areas...such as providing protections for freedom of association and collective bargaining," a statement by the office of the US Trade Representative said. Thailand's Generalized System of Preferences eligibility will be revoked for approximately one-third of its GSP trade, which totalled USD4.4 billion in 2018, the statement said, adding that eligibility will be revoked for all seafood products from the South-east Asian country. The USTR's office also said that Trump will restore some GSP benefits for Ukraine "following its passage of legislation aimed at addressing shortcomings in its intellectual property regime".
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Dozens of global policymakers and tycoons will attend a Saudi investment summit starting Tuesday, helping the kingdom turn the page on a critic's murder that triggered a mass boycott last year. A strong turnout at the three-day Future Investment Initiative, nicknamed "Davos in the desert", would further rehabilitate de facto ruler Crown Prince Mohammed bin Salman's image, a year on from the killing of journalist Jamal Khashoggi.
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BROKER RATING CHANGES
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GOLDMAN CUTS INFORMA TO 'SELL' ('NEUTRAL') - TARGET 723 (857) PENCE
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RBC INITIATES FLUTTER ENTERTAINMENT WITH 'OUTPERFORM' - TARGET 9000 PENCE
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HSBC RAISES DRAX GROUP TO 'BUY' ('HOLD') - TARGET 360 (320) PENCE
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JPMORGAN CUTS HASTINGS GROUP TO 'NEUTRAL' ('OVERWEIGHT') - TARGET 200 (245) PENCE
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COMPANIES - FTSE 250
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Ferrexpo said Chief Executive Officer Kostyantin Zhevago will step down temporarily to focus on resolving matters in Ukraine relating to one of the businesses he owned until 2015. Chief Financial Officer Chris Mawe has been appointed as acting chief executive. Zhevago will remain on the board as a non-independent, non-executive director, Ferrexpo added. Earlier this month, Bloomberg reported Ukraine had added Zhevago to an international wanted list after he failed to report for questioning about former business commitments. He was named as a suspect in absentia, Bloomberg reported. According to Bloomberg, Ukrainian investigators believe he has committed "large-scale" money laundering and embezzlement. Zhevago "strongly denies any allegations of wrongdoing", the company had said in response. Ferrexpo Chair Steve Lucus said on Monday: "The board, including Mr Zhevago, believes that this temporary change of leadership is necessary and in the interests of all shareholders to enable Mr Zhevago to focus on on-going matters in Ukraine without impacting the company's operations. Mr Zhevago continues to have the full support of the board."
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COMPANIES - OTHER MAIN MARKET AND AIM
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Martin Sorrell's S4 Capital said its programmatic media practice MightyHive has merged with two companies to "build on its existing analytics capabilities". MightyHive has combined with London-based ConversionWorks and South Korea-based data and analytics firm Datalicious Korea. S4 Capital provided no financial details of the MightyHive's three-way merger.
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Photo-Me International said it has continued to make strategic and operational progress, driven by the expansion of its Laundry unit and the acquisition of French juice equipment firm Sempa back in April. In the period to September 30, trading has been in line with expectations, supported by growth in Continental Europe and Asia, despite trading in the Identification division in the UK remaining challenging. The company said total reported Identification revenue in the period to September 30 declined by 3.8%, reflecting "the decrease in activity in the UK photobooth market". Photo-Me said the expansion of Laundry operations remains a key driver of growth and has made further progress during the period, with revenue growth of 23%. "While consumer uncertainty continues to weigh on our business in the UK, we remain confident that overall the group will continue to perform well, and in line with market expectations in the current financial year," Photo-Me said.
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COMPANIES - INTERNATIONAL
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Dutch industrial conglomerate Royal Philips said its third quarter results were "mixed" with strong sales growth, but weak profit performance amid issues in its Connected Care unit. For the three months ended September, pretax profit fell 32% to EUR285 million from EUR421 million the year prior. This was despite sales rising 9.0% to EUR4.70 billion from EUR4.31 billion the year before, up 6% on a comparable basis. "In the third quarter, we delivered mixed results for the group," Chief Executive Frans van Houten said. "We recorded strong 6% comparable sales growth, driven by the innovative products and solutions across our businesses. This was reflected in the mid-single-digit comparable sales growth in mature geographies and high-single-digit growth in growth geographies, with double-digit growth in China."
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Asia-focused insurer AIA Group reported its third quarter ended September saw value of new business grow to USD980 million from USD979 million the year prior, up 1% at constant exchange rates. Value of new business margins widened to 67.0% from 61.1% the year before. AIA CEO Ng Keng Hooi said the firm achieved this growth despite the "challenging" conditions in its home market of Hong Kong, where months of pro-democracy unrest has continued. Excluding Hong Kong, value of new business was 14% higher in the third quarter on the year prior.
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The Pentagon said Friday it was awarding a USD10 billion cloud computing contract to Microsoft, following a highly scrutinized bidding process which Amazon.com Inc had been favoured to win. The 10-year contract for the Joint Enterprise Defense Infrastructure program, better known as JEDI, ultimately will see all military branches sharing information in one system that can be scoured in real time with the help of artificial intelligence.
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French group Banijay said Saturday it had agreed to buy Dutch-headquartered rival Endemol Shine to create a TV production giant. Banijay, a leading creator and producer of TV content, said in a statement it would acquire 100% of the equity of the Endemol Shine Group, co-owned by Walt Disney and funds managed by affiliates of Apollo Global Management. The TV giants have not specified the acquisition price but reports said the valuation could be close to two billion euros. The combined future group will host a variety of hit series such as "Black Mirror", "Versailles", "Peaky Blinders", "Big Brother" and "MasterChef".
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The strike at US car maker General Motors has come to an end after the workers' union agreed to pass a collective deal on Friday to end the longest automotive strike in 50 years. After striking for 40 days, the United Auto Workers union announced in a statement late Friday that they had voted in favour of passing a four-year labour contract that will end the walkout. GM had already reached a preliminary agreement with the UAW on Wednesday last week, but the employees still had to ratify it.
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Monday's Shareholder Meetings
Bilby
AVI Japan Opportunity Trust (re proposed related-party transaction)
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By Tom Waite; thomaslwaite@alliancenews.com
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