HSBC reports Q4 2022 earnings

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HSBC: On Tuesday, it reported fourth-quarter 2022 earnings that beat analysts’ expectations.

In the three months ended December, the bank reported pretax profit of $5.2 billion, up 108% from $2.5 billion a year ago and better than the $4.97 billion the bank had expected. HSBC said its fourth-quarter results reflected strong revenue growth and lower operating costs.

Full-year reported revenue was $51.73 billion, up from $49.55 billion in 2021. The bank’s reported pretax profit for 2022 fell to $17.53 billion from $18.91 billion a year ago. It said pre-tax profit in the 2022 report included a $2.4 billion impairment charge due to the planned sale of its retail banking operations in France.

HSBC, Europe’s largest bank by assets, said high global interest rates supported the company’s confidence in meeting its target of at least 12% return on average tangible capital by 2023.

“We have completed the first phase of our transformation and our international footprint is now underpinned by good, broad-based profit generation around the world,” said group chief executive Noel Quinn.

“We are on track to deliver higher returns in 2023 and have built a platform for further value creation,” he said.

Global banks had net interest income as central banks around the world raised interest rates to tame inflation. HSBC expects net interest income to be at least $36 billion in 2023.

Shares in Hong Kong-listed HSBC were about 1% lower before the release, but were nearly 2% lower by mid-afternoon.

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Here are other important points on a bank’s financial report card:

  • Expected credit losses of $3.6 billion in 2022 reflect growing economic uncertainty, rising interest rates and developments in China’s real estate sector.
  • Net interest margin, a measure of lending profitability, rose 28 basis points to 1.48% in 2022, reflecting the rate hike.
  • HSBC’s board approved a second interim dividend of 23 cents per share, making it 32 cents per share for 2022.

Special dividend

In addition to its second interim dividend of 23 cents per share, the bank said it is considering a special dividend of 21 cents per share after it completes the sale of its banking business in Canada. HSBC said the payment would be made in early 2024 if the deal closes as expected in late 2023.

HSBC has announced that it is targeting a 50% dividend payout ratio for 2023 and 2024.

Quinn told CNBC’s “Capital Connection” that HSBC aims to raise its dividend to pre-Covid levels this year.

“The math gives you a dividend answer of about 50 cents in 2023, which is kind of a tentative level,” Quinn said. “If we deliver on these promises this year, 50 cents is a 50 percent payout ratio.”

“What we have now is a much healthier balance of returns for our shareholders, plus the ability to retain earnings for growth, and if that growth isn’t there, we also have the ability to buy back,” he said.

A rosy outlook for China

HSBC Group Chairman Mark Tucker said the global economy still faces many macroeconomic headwinds.

“The pandemic, high inflation and interest rates and the Russia-Ukraine war all have implications for the global economy, including volatility in markets, disruption to supply chains, pressure on small and medium-sized businesses and pressure on the cost of living.” he said in a statement.

“Different economies also face different challenges now and have different opportunities in 2023,” he said.

Tucker also echoed HSBC economists’ forecast that China would grow 5% in 2023.

“The reopening of borders means that Hong Kong and the entire Greater Bay Area are likely to be the main beneficiaries, and I expect a strong recovery,” he said.

“China’s reopening and a package of measures to stabilize the real estate market should provide a significant boost to its economy and the global economy, albeit with some near-term volatility,” he said.

He said Europe, unlike Asia, would likely face headwinds from rising energy prices due to Russia’s war on Ukraine. Tucker also said that if the economy does go into recession, it will be relatively shallow.

“Overall, I am optimistic about the global economy in the second half of 2023, but there is still a high level of uncertainty related to the Russia-Ukraine war and fears of a recession could still dominate much of the coming year,” he said.

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