HSBC reported a $1.2bn rise in fourth quarter revenue to $16.5bn, when ignoring currency and one-off items. Growth was driven by wealth management and growth in net interest income.
Underlying profit before tax rose 10% to $7.3bn, 9% better than expected driven by fee generating businesses. Impairments rose $0.5bn to $1.4bn, largely due to bad loans in Chinese real estate.
The CET1 ratio, a key measure of financial resilience, was 14.9% (14.0-14.5% target range). A new buyback of up to $2bn was announced, alongside a quarterly dividend of $0.36 per share.
Restructuring and cost efforts are expected to generate savings of $0.3bn in 2025, $1.5bn by the end of 2026, and a further $1.5bn is being redeployed from non-strategic activities into other areas over the medium term.
The shares fell 1.1% in early trading.
Our view
Fourth-quarter performance was driven by ongoing strength in the non-interest income businesses (wealth management etc). This is more volatile than the traditional interest income, so there is reason to be a little cautious on this repeating throughout the new year. But without giving specific guidance, management sounded upbeat about the prospects for continued strength.
Efforts to refocus the business on higher growth efforts continue. Last year HSBC made several changes including the sales of its retail banking operations in France, and a complete exit from Canada and Argentina. Latest plans are looking reduce costs by around $3bn in the coming years, with around half passing through to the profit line and half reinvested.
Costs have been a challenge for HSBC so the good control seen over 2024 alongside these new measures should be taken as a positive.
Traditional banking is the key driver of income but finding growth has been a bugbear. As the interest rate environment softens, loan growth will be needed to help support interest income. It was encouraging to hear management confident on the pipeline in the key Hong Kong market. This needs to be a key area of focus if it wants to achieve the target of mid-single-digit growth in the medium term.
There's also a large global banking arm. Income is diverse, from trading in credit and currency markets to trading finance and payment solutions. Interest rates still impact some income streams, but not to the extent of more traditional banking operations. With interest rate tailwinds easing, we support the diversification this brings.
The Asian focus is a positive when it comes to areas like wealth management, with this being a high growth part of the market. HSBC has leadership positions, so looks well placed to benefit.
The balance sheet is strong and supports ongoing capital distributions, though nothing is guaranteed. We are keeping an eye on non-performing loans; HSBC has typically been seen as a leader among its Asian peers but a tick higher in recent years has eroded that position. We aren’t concerned, but it’s something to monitor.
The Asian focus is a differentiator from many of its peers, and we continue to see the potential for further growth from areas like wealth management. Though not guaranteed, there’s scope for ongoing shareholder returns with the balance sheet in a strong place currently. HSBC is our preferred UK-listed name for Asian exposure, though recent strengths have already been reflected in a step up in the valuation.
Environmental, Social and Governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security is also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, HSBC’s management of material ESG issues is strong.
HSBC faces risks from business ethics and product governance due to its involvement in related lawsuits and investigations. Its policies against money laundering, bribery, and corruption also have gaps. Although HSBC's credit and loan standards generally meet industry norms, its approach to client engagement on climate issues, particularly in Asia, lacks sufficient evidence.
HSBC key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.