Latest results underline the importance of Asia, but can investors look past the question of Hong Kong?
Full-year results to 31 December 2020
Chief executive Noel Quinn said:
"In 2020, our people delivered an exceptional level of support for our customers in very tough circumstances, while our strong balance sheet and liquidity gave reassurance to those who rely on us. We achieved this while delivering a solid financial performance in the context of the pandemic - particularly in Asia - and laying firm foundations for our future growth. I am proud of everything our people achieved and grateful for the loyalty of our customers during a very turbulent year.
“The growth plans we are announcing today aim to establish HSBC as a dynamic, efficient and agile global bank with a digital-first mindset, capable of providing a world-leading service to our customers and strong returns for our investors. We intend to deliver them at pace."
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 arenas of Wealth and Personal Banking, Commercial Banking and Global Banking and Markets.
For a round-up of these latest results, please click here.
In a world where there are arguably too many banks competing for business, HSBC’s former strength in its global diversity has now become something of a weakness. These latest results saw its European operations reporting a pre-tax loss of $4.2 billion, albeit an improvement from a previous loss of $4.7 billion. Asia remained by far its most profitable region. Profit there retreated to $12.8 billion over the year from $18.5 billion in 2019. Profit in North America came in at only $168 million.
As such, management is now planning to accelerate its investments in its region of strength Asia, while continuing to restructure and likely resize its businesses elsewhere. On a divisional basis, its Global Banking and Markets or investment banking business may pose something of a dilemma. Mainly exposed to fixed income or bond markets, it competes against US giants such as JPMorgan (NYSE:JPM). As enjoyed by US rivals, Central Bank action to reduce interest rates under the pandemic has worked to the division's advantage during 2020. Over the year it generated nearly 40% of group profits, up from 23% in 2019. Profit generation in group terms for its other two more traditional banking businesses retreated.
For investors, the bank’s relative financial strength going into the banking crisis of 2008 continues to play through. The latest increase in the capital cushion offers balance sheet reassurance and has enabled a return to dividend payments given previous regulator permission. Management’s attack on group costs remains ongoing, but strength in a region of high political uncertainty cannot be overlooked. Western government’s clashes with the Chinese administration over political freedoms in Hong Kong is still an issue to be resolved, despite what might prove to be a more malleable US government. For now, there arguably remains little rush to add to any existing holdings in this Asia-focused bank.
- A focus on Asian growth prospects
- Operating expenses down 19%
- Persisting political tensions between the West and China
- Return on equity achieved remains far below management’s target
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