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LONDON (Alliance News) - HSBC Holdings PLC on Monday reported a 1.0% increase in annual pretax profit, missing analyst expectations after a loss-making fourth quarter, as the bank grappled with slowing Chinese economic growth, declining commodity and oil prices, and historically low interest rates.
HSBC lifted its dividend for the year as a whole to USD0.51 per share from USD0.50, as pretax profit rose to USD18.87 billion in 2015, from USD18.68 billion in 2014. Coming one week after HSBC decided to remain in the UK, rather than move to its historic home of Hong Kong, the results missed analyst expectations of a USD21.78 billion pretax profit, according to consensus estimates compiled by the bank.
Chairman Douglas Flint said the group had a "broadly satisfactory" financial performance in 2015, which he said was marked by "seismic shifts" in global economic conditions, and cautioned that China's slower economic growth will "undoubtedly" play its part in a "bumpier" financial environment. Nevertheless, Flint expects China to be the driver of global growth, as the Asian giant's economy transitions to services from manufacturing.
HSBC made a fourth-quarter pretax loss of USD858.0 million, compared with a USD1.73 billion pretax profit in the corresponding three months of 2014.
Net operating income, which is stated before loan impairment charges and other credit risk provisions, decreased to USD11.77 billion in the fourth quarter from USD14.31 billion the corresponding quarter the prior year, taking the full-year figure down to USD59.80 billion from USD61.25 billion. On an adjusted basis, which strips out one-off gains and losses, annual revenue rose by 1.0% to USD57.77 billion, driven by the group's client-facing investment banking operations, commercial banking and retail activities.
Fourth-quarter operating expenses decreased to USD11.54 billion from USD11.89 billion, helping to reduce full-year costs to USD39.77 billion from USD41.25 billion. On an adjusted basis, annual operating costs rose by 5.0% to USD36.18 billion, due to wage increases and regulation.
Loan impairment charges across the year as a whole amounted to USD3.72 billion, down from USD3.85 billion the prior year, amid a fourth-quarter increase to USD1.64 billion from USD1.25 billion. The oil & gas sector, the economic slowdown in Brazil, and lower releases from the bank's US consumer and mortgage lending run-off portfolio were among the drivers of the increase in provisions towards the end of the year, according to the slides of a presentation for analysts and investors.
HSBC has "limited" exposure to service companies and pure producers in the oil and gas sector, according to the presentation, with an overall "drawn risk" exposure of USD29.0 billion to the sector at the end of 2015, down 15% on the prior year. By region, HSBC is most exposed to North America, which accounted for USD9.0 billion of the overall figure, followed by Asia at USD7.0 billion, Europe at USD6.0 billion, Middle East & North Africa at USD5.0 billion, and Latin America at USD2.0 billion.
Chief Executive Officer Stuart Gulliver said the group's "diversified banking model, low earnings volatility and strong capital generation" create "strength and resilience" in what he described as an "uncertain" economic environment.
The unanimous board decision in favour of London, where HSBC moved in the wake of its acquisition of Midland Bank in 1992, allows Gulliver to concentrate on achieving targets set out at an investor update in June 2015.
Gulliver's "pivot to Asia" strategy is designed to shift billions of dollars' worth of risk-weighted assets into the Pearl River Delta, the central part of Guangdong province on China's south coast, in an effort to improve returns. Cutting annual costs, to the tune of up to USD5.0 billion by 2017, forms another important element of the plan to improve the bank's financial performance.
HSBC said it has reduced risk-weighted assets by USD124 billion so far, meaning that about 45% of its target for 2017 has been achieved. The bank expects further reductions in 2016, in addition to a decrease of around USD33 billion from the sale of its business in Brazil, though the sale of its business in Turkey has fallen through.
"We have received a number of offers for our business in Turkey since June, none of which were deemed to be in the best interests of shareholders. We have therefore decided to retain and restructure our Turkish operations, maintaining our wholesale banking business and refocusing our retail banking network," Gulliver said Monday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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