HSBC on Monday delivered its worst return-on-equity figure since 2009, missing its own target to deliver 10 per cent return by 2017.
At 7.2 per cent, the return on equity reflects
The London-headquartered bank also reported an increase in its loan impairment charges, which rose 17 per cent to US$3.7 billion, compared with US$3.2 billion in 2014.
The bank said its pretax profit rose just 1 per cent for the 12 months ending December 31, at $18.9 billion compared with US$18.68 billion in 2014. The figure is significantly lower than the average analyst forecast of US$21.8 billion.
HSBC chief executive Stuart Gulliver cited non-performing loans hefty tax bills in the UK as factors weighing on the profit result.
“2015 was marked by some seismic shifts in global economic conditions, most notably the continuation of a sharp decline in commodity and oil prices, in part attributable to growing concerns over China’s slowing economic growth,” Gulliver said in a statement accompanying the results announcement. “As a consequence, monetary policy remained accommodative throughout the major developed economies and key currency interest rates remained at historically low levels.”
Christine Kuo, senior vice president, financial institutions group at Moody’s said the China slowdown is having a big impact on HSBC’s global business.
“[It’s]not only related to the higher loan impairment. But there is a question how it will affect other parts of the business. The impact on China’s trading partners is also having implications on revenue.”
“HSBC focuses more on multinational companies in China. Its portfolio should be a lot more resilient than domestic Chinese banks. Its past record has been much better.”
Sabine Bauer, senior director at Fitch Ratings estimated HSBC total China-related exposure now stands at between US$160 billion - US$170 billion. She had expected HSBC in Hong Kong to report non performing loans of 2.5 per cent. Of this figure 1.5 to 2 percentage points are related to its China lending, she said.
“From a rating perspective, we don’t mind if they go a bit slower,” Bauer said.
Gulliver and his management team are expected to hold a press conference on the annual results in London at 6.30pm in Hong Kong time today.
At the conference, Gulliver is expected to report progress on the bank’s break-up in the UK, ahead of the 2019 deadline the UK government has set for it to “ring-fence” customer deposits from its riskier investment banking activities. HSBC said in an earlier update that the process will likely cost US$2 billion.
Gulliver announced last week that the bank would remain domiciled in the UK, dashing hopes that it would relocate it headquarters back to Hong Kong.
Analysts are anticipating an explanation at today’s conference on how the bank may plan to distribute the burden of the Financial Stability Board’s requirement for it to raise capital to meet its total loss absorbing capacity – a sum that banks must set aside to “pre-bail” itself without going to taxholders in the event of a bank failure in the future.
HSBC has previously said its Hong Kong entity will likely bear the most of the brunt, having to raise up to US$14 billion in debt to meet the shortfall. HSBC’s UK and US arms will need to come up with US$12.7 and US$5.1 billion respectively.