ii view: HSBC focused on Asian wealth

First-half results to 30 June

• Revenue up 1% to $37.3 billion (£28.3 billion)
• Pre-tax profit down 0.5% to $21.55 billion (£16.4 billion)
• Bad debt provision of $1.1 billion, down from $1.4 billion in H1 2023
• Capital cushion or CET1 ratio of 15%, up from 14.8% in late December
• Second interim dividend of $0.10 per share

Guidance:

• Now expects full-year net interest income of around $43 billion, up from a previously $41 billion
• New quarterly share buyback of up to $3 billion

Chief executive Noel Quinn said: “After delivering record profits in 2023, we had another strong profit performance in the first half of 2024, which is further evidence that our strategy is working. Our investment in Wealth is delivering higher, more diversified revenue and we continue to grow our core international and scale businesses, all of which helped us to provide $13.7 billion of distributions in respect of the first half. 

“We are confident that we have the right strategy and model to grow revenue, even in a lower interest rate environment.”

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

ii round-up:

Founded in 1865 in Hong Kong and now headquartered in London, HSBC Holdings (LSE:HSBA) serves around 41 million customers across 60 countries and territories worldwide. 

The FTSE 100 company operates across the three arenas of Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets.

For a round-up of these latest results announced on the 31 July, please click here.

ii view:

HSBC is one of the world’s largest banking and financial services organisations. A stock market value of around £120 billion stands comfortably ahead of UK-headquartered rivals Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC), and NatWest Group (LSE:NWG), all at under £40 billion. 

Wealth and Personal Banking generated around 46% of overall profits in 2023, followed by Commercial Banking at 38% and Global Banking and Markets the balance of 16%. Geographically, Hong Kong accounts for most revenues at 31%, followed by the UK at 17%, France and the US each at around 6%, and other countries the balance. 

For investors, the economic outlook for China and Hong Kong continues to cast a shadow. Political tensions between the US and China remain elevated, with a potential new US government possibly upping tariffs and trade measures. Growth in costs of around 5% for 2024 compared to 2023 is forecast, while an estimated price to net asset value of close to one compares to ratios of around 0.5 times for rivals Standard Chartered (LSE:STAN), Barclays and Deutsche Bank AG (XETRA:DBK), suggesting possible better value elsewhere. 

• The two shares star investor Bill Ackman has snapped up
• Support builds for high-yielding insurer
• Watch our video: why City of London has boosted banks to 20-year high

To the upside, a concentration on fee-based businesses and move away from more volatile interest income is being made with $32.4 billion of net new invested assets attracted to its Wealth and Personal Banking division during the period. Second-quarter bad debt provisions fell year-on-year aided by reduced commercial real estate impairments in China. Ongoing investment in technology and digital services is fuelling costs, although should bring medium- to longer-term reward, while HSBC’s balance sheet remains robust with the Capital cushion or CET1 ratio of 15% sat above management’s medium-term target range of 14% to 14.5%. 

In all, and despite continued risks, exposure to growing Asian wealth and a consensus analyst estimate of fair value sat at over 775p per share appears to offer grounds for continued long-term optimism. 

Positives: 

• Robust balance sheet
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Heightened political tensions between the West and China

The average rating of stock market analysts:

Cautious buy