ii view: HSBC happy with good start to the year

The economic outlook has improved, but uncertainties remain. We assess prospects.

First-quarter results to 31 March 2021

• Reported revenue down 5% to $13 billion (£9.4 billion)
• Profit before tax up 79% to $5.8 billion (£4.2 billion)
• Capital cushion or CET1 ratio of 15.9%, unchanged from Q4 2020

Outlook:

• Improved economic outlook gives management increased confidence in its revenue growth plans
• Consider whether to announce an interim dividend at its first-half-results in August

Chief executive Noel Quinn 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. 

"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."

ii round-up:

Founded in 1865 in Hong Kong and now headquartered in London, HSBC (LSE:HSBA) serves more than 40 million customers in over 60 countries worldwide. 

It operates across the three areas of Wealth and Personal Banking, Commercial Banking and Global Banking and Markets.  

For a round-up of these latest results, please click here.

ii view:

Like rivals such as JPMorgan (NYSE:JPM) in the US and Lloyds Banking Group (LSE:LLOY) in the UK, HSBC was able to report a writing back of previously made pandemic related bad debt provisions. A good performance at its wealth business, including net new money in global private banking of $13 billion and $11 billion at its asset management business, also contributed. 

More broadly, transformation plans under the relatively new chief executive continue to be pursed. Required restructuring costs and increased investment in technology both contributed to higher operating expenses in the quarter. The bank is targeting an adjusted cost base of $31 billion or less in 2022. An update regarding its strategic plans is expected to be announced at first half results in August. 

For investors, a move into profit across all its regions contrasts with a more sporadic performance in 2020. A transformation plan, including cost reductions, adds positivity to ongoing robust financial strength. But political uncertainty in its region of strength, Asia, accounting for around 65% of overall profit, cannot be ignored. The relationship between Hong Kong, China, the US and the West more broadly continues to evolve. In all, and with the shares currently trading close to consensus fair value at 457p per share, the stock appears to be up with events.

Positives: 

• A focus on Asian growth prospects
• Transformation plan being pursued

Negatives:

• Reported revenue down 5%
• Persisting political tensions between the West and China

The average rating of stock market analysts:

Hold