Earnings Release Is HSBC A Buy?

Credit Twitter HSBC

 

HSBC Europe’s largest lender reported pre tax profit of 79% for the first quarter of 2021.

Financial performance (vs. 1Q20) 

  • Reported profit after tax up 82% to $4.6bn and reported profit before tax up 79% to $5.8bn. Reduced revenue continued to reflect low interest rates. This impact was partly offset as 1Q20 included materially adverse market impacts in life insurance manufacturing and valuations in Global Banking and Markets (‘GBM’). In addition, there were releases of allowances for expected credit losses in the quarter, reflecting the improved economic outlook. Adjusted profit before tax up 109% to $6.4bn. 
  • All regions profitable in 1Q21, notably HSBC UK Bank plc reported pre-tax profits of over $1.0bn in the quarter. While there continues to be interest rate headwinds, expected credit losses and other credit impairment charges (‘ECL’) fell, reflecting the improved economic outlook. 
  • Reported revenue down 5% to $13.0bn due to the impact of 2020 interest rate reductions in all global businesses. This was partly offset by market impacts in life insurance manufacturing and valuations in GBM. 
  • Net interest margin (‘NIM’) of 1.21%, down 33 basis points (‘bps’) from 1Q20. NIM broadly stable with 4Q20. 
  • Reported ECL were a net release of $0.4bn, compared with a $3.0bn charge in 1Q20. The net release in 1Q21 primarily reflected an improvement in the economic outlook from 2020. Stage 3 ECL were lower, in part as 1Q20 included a large charge related to a corporate exposure in Singapore. 
  • Reported operating expenses up 9% from higher restructuring and other related costs from our transformation programme and increased investment in technology. Adjusted operating expenses up 3% due to a higher performance-related pay accrual, partly offset by the impact of our cost-saving initiatives. 
  • Lending increased by $2bn on a reported basis and $6bn on a constant currency basis in the quarter. Lending growth was in Wealth and Personal Banking (‘WPB’), notably mortgages in the UK and Hong Kong, and in Commercial Banking (‘CMB’) in areas of strategic focus. 
  • Return on average tangible equity (‘RoTE’) (annualised) of 10.2%, up 6.0 percentage points from 1Q20. • Common equity tier 1 (‘CET1’) capital ratio of 15.9%, unchanged from 31 December 2020. 

 

Outlook 

    • The economic outlook has improved, giving us increasing confidence in our revenue growth plans. While early signs are positive, with evidence of growth in strategic areas, including improved lending pipelines, there remain uncertainties. 
    • Our 1Q21 results were favourably impacted by net ECL releases, particularly in the UK, reflecting improved economic forecasts. There remains a high degree of uncertainty as countries emerge from the pandemic at different speeds and as government support measures unwind. Based on the current consensus economic forecasts trajectory, we expect our ECL charge for 2021 to be below the medium-term range of 30bps to 40bps of average loans that we indicated at our 2020 annual results. 
    • We expect mid-single-digit percentage growth in customer lending during 2021. This growth remains highly dependent on the speed at which economies recover from the Covid-19 pandemic, together with the duration of various government support measures and restrictions. 
    • We continue to make progress against the strategic plan we announced in February 2021, which responds to the fundamental changes in our operating environment and aligns to our refreshed purpose, values and ambition. We expect to provide an update at our 2021 interim results in August. 
    • As indicated at our 2020 annual results in February 2021, we do not intend to pay quarterly dividends during 2021. The Group will consider whether to announce an interim dividend at our 2021 half-year results in August.

 

 

 

Noel Quinn, Group Chief Executive HSBC, said:  

“We had a good start to the year in support of our customers, while achieving materially enhanced returns for our shareholders. I am  pleased with our revenue and cost performance, but particularly with our significantly lower expected credit losses. Global Banking and  Markets had a good quarter, and we saw solid business growth in strategic areas, including Asia Wealth and trade finance, and  mortgages in Hong Kong and the UK. We also strengthened our lending pipelines in our retail and wholesale businesses. 

The execution of our growth and transformation plans is proceeding well. We made further progress in reducing both costs and risk weighted assets, and launched new products and capabilities in areas of strength.  

The economic outlook has improved, although uncertainties remain. We carry good momentum into the second quarter, while  maintaining conservative positions on capital, funding, liquidity and credit.” 


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