• HSBC Holdings reported a record annual profit for 2023, reaching $30.3 billion, despite missing estimates due to a $3 billion charge on its stake in a Chinese bank amidst mounting bad loans in China’s real estate market.
• Shares of HSBC slid 6% in early London trade following the announcement, with concerns over higher operating costs and a cautious outlook on loan growth in 2024, despite the bank’s plans for a $2 billion share buyback and promising growth in its wealth business.

HSBC Holdings (HSBA.L) reported a record annual profit for 2023 despite facing challenges stemming from its exposure to the Chinese market and rising bad loans. However, the reported profit missed estimates due to a significant charge on its stake in a Chinese bank.

Also Read:Breaking: China’s Central Bank Slashes Mortgage Reference Rate in Record Move

Share Performance and Financial Highlights

Despite the record profit, HSBC shares slid 6% in early London trade, reflecting investor concerns over the hefty $3 billion charge on its stake in a Chinese bank and higher operating costs. The reported pretax profit of $30.3 billion marked a 78% increase from the previous year but fell short of the consensus estimate of $34.1 billion.

Impact of China’s Real Estate Crisis

China’s deepening real estate crisis has had widespread repercussions, affecting not only the domestic economy but also global banks with exposure to the Chinese market. HSBC’s $3 billion impairment on its stake in China’s Bank of Communications (BoCom) represents the largest writedown on a Chinese bank among foreign peers.

CEO’s Outlook and Analyst Commentary

CEO Noel Quinn expressed belief in the stabilization of valuations in mainland China’s commercial real estate market but cautioned that challenges would persist for a few years. Analysts, however, remained cautious about HSBC’s outlook, noting that its performance in mainland China appeared worse than expected.

Cautious Outlook and Rising Costs

HSBC remains cautious about loan growth in the first half of 2024, given slowing economic growth and persistent inflation in many economies. The bank experienced a 6% growth in costs in 2023, higher than anticipated, largely due to increased bank levies in the U.S. and Britain. Cost growth is expected to continue at 5% in 2024.

Performance of HSBC’s Wealth Business

Despite challenges, HSBC’s wealth business showed promising growth, with revenues up 8% to $7.5 billion. The acquisition of Citigroup’s wealth business in China contributed to this growth. Additionally, the wealth unit attracted significant net new invested assets, reflecting HSBC’s efforts to expand its presence in Asia.

Bonus Pool and Executive Compensation

HSBC’s bonus pool increased to $3.8 billion, reflecting improved performance. CEO Noel Quinn saw his total pay double in 2023, largely due to long-term incentives from his appointment in 2020. The bank also announced a fourth interim dividend and hinted at a special dividend once the sale of its Canada business is finalized.

In conclusion, while HSBC reported a record annual profit, challenges remain, particularly concerning its exposure to the Chinese market and rising costs. The bank’s cautious outlook reflects the uncertainties ahead, but its focus on growing its wealth business and returning value to shareholders through dividends demonstrates a commitment to navigating these challenges effectively.