Stuart Gulliver’s final set of results at HSBC Holdings PLC were not quite the swansong he had hoped for as he hands the reins over to his long-term lieutenant, John Flint.
Europe’s largest bank missed estimates for fourth-quarter revenue and profit as it became the latest firm to take losses from two high-profile corporate fallouts and post a sharp decline in trading income at its investment bank, the lender said yesterday.
“The results were decent enough, but nothing earth-shattering,” said Hugh Young, head of Asia at Standard Life Aberdeen PLC, one of the bank’s top shareholders.
HSBC is “firmly on the course set by Stuart and Douglas Flint with more to go for; it would be great if they get to a 10 percent return on equity from the current 5.9 percent,” he said, referring to the industry’s measure of profitability.
Flint, who takes over today, inherits an Asia-focused bank back in expansion mode after years of restructuring during which it lost US$20 billion of revenue.
After shrinking and imposing central control over the lender’s far-flung global network, while enduring several misconduct issues, investors are now looking for a return to growth.
During his last year, Gulliver managed to arrest a six-year slide in income and positioned the bank to return more cash to investors in the second quarter.
Yesterday was a rare miss for investors who had gotten used to Gulliver beating profit estimates, at least in the latter part of his tenure.
The outgoing chief executive officer delivered higher-than-forecast adjusted net income in six of the previous seven quarters, according to data compiled by Bloomberg.
A major culprit were chunky loan impairments, which were about US$188 million higher in the quarter than a year earlier, “largely driven by two individual corporate exposures in Europe,” HSBC said in the statement.
The two companies responsible were Steinhoff International Holdings NV — the South African retailer engulfed in an accounting scandal, which owns businesses in Britain — and Carillion PLC, the UK construction company that imploded earlier this year, a person familiar with the figures said, asking not to be identified speaking about confidential data.
The losses helped drive down adjusted pretax profit to US$3.6 billion in the fourth quarter, undershooting the lowest estimate among five analysts surveyed by Bloomberg News.
While revenue rose 10 percent to US$12.4 billion, it failed to match the US$12.7 billion analysts had expected.
HSBC’s strategy to redeploy US$100 billion or more of assets to Asia is also paying off.
Fourth-quarter profit rose 23 percent in the region, where it makes more than three-quarters of its earnings, compared with a 29 percent decline in Europe.
At the markets business, revenue fell 19 percent, driven by a 48 plunge in rates and a 24 percent drop in fixed income and currency trading. That was better than Wall Street peers that collectively posted a 30 percent drop in markets revenue in the final three months of the year, and in line with Deutsche Bank AG, where trading revenue declined 27 percent.
Softening the blow for shareholders is the prospect of more cash being returned this year.
HSBC finance director Iain Mackay said the bank would look at buying back more shares in the second quarter of the year once it has completed a US$5 billion to US$7 billion debt issuance program.
HSBC has repurchased US$5.5 billion since the middle of 2016 and analysts at UBS Group AG forecast another US$4 billion this year.
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