HSBC CEO: We have a much healthier capital base and profit generation than pre-Covid

HSBC on Tuesday it reported fourth-quarter 2022 earnings that beat analyst expectations.

The bank’s reported pretax profit for the three months ended December was $5.2 billion, up 108% from $2.5 billion a year ago and better than the $4.97 billion expected in estimates compiled by the bank. HSBC said its fourth-quarter results reflected strong reported revenue growth and lower reported operating expenses.

For the 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 the reported pre-tax profit for 2022 included a $2.4 billion write-down due to the planned sale of its retail banking business in France.

HSBC, Europe’s largest bank by assets, said higher global interest rates support the company’s confidence in achieving its target of at least 12% return on average tangible equity by 2023.

“We completed the first phase of our transformation and our international connectivity is now underpinned by good, broad profit generation around the world,” said Noel Quinn, Group CEO in the press release.

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

Banks globally have seen strong net interest income as central banks around the world raised interest rates to curb inflation. HSBC said it expects net interest income of at least $36 billion in 2023.

Hong Kong-listed shares of HSBC were about 1% lower ahead of the release, but were nearly 2% lower in the afternoon.

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Here are other highlights of the bank’s financial report card:

  • Reported expected credit losses of US$3.6 billion in 2022 reflect increased economic uncertainty, rising interest rates and the development of China’s real estate sector.
  • Net interest margin, a measure of lending profitability, rose 28 basis points to 1.48% in 2022, reflecting interest rate increases.
  • HSBC’s board approved a second interim dividend of 23 cents per share, bringing the total for 2022 to 32 cents per share.

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 operations in Canada. HSBC said the payment would come in early 2024 if the deal closes as expected in late 2023.

HSBC said it is establishing a dividend payout ratio of 50% for 2023 and 2024.

Quinn said on CNBC’s “Capital Connection” that HSBC aims to reach pre-Covid dividend levels within this year.

“The math gets you to an answer of about 50 cents in dividends in 2023, which is kind of pre-Covid levels,” Quinn said. “If we keep these promises this year, that 50 cents is on a payout ratio of 50%.”

“What we have now is a much healthier balance of yield generation in return for our shareholders, plus an ability to retain earnings for growth, and if that growth isn’t there, then we have buyback capacity as well,” he said.

Rosy outlook for China

Mark Tucker, HSBC’s group chairman, said the global economy still faces many macroeconomic headwinds.

“The pandemic, high inflation and interest rates and the war between Russia and Ukraine all have implications for the global economy, including market volatility, supply chain disruptions, pressure on SMEs and pressure on the cost of living.” he said in a statement.

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

Tucker also reiterated HSBC economists’ forecast for China to grow by 5% in 2023.

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

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

He said Europe, unlike Asia, is likely to face headwinds from rising energy prices driven by Russia’s war on Ukraine. Tucker also said if the economy goes into a 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 due to the war between Russia and Ukraine and fears of recession may still dominate much of the coming year,” he said .