HSBC shares fall as earnings miss forecasts on China exposure

Shares in HSBC fell on Wednesday as a record annual profits missed forecasts after it was forced to take a $3bn hit from its exposure to a Chinese bank.

The Asia-focused lender said full-year pre-tax profit rose 78% to $30.3bn driven by high global interest rates, but below the $34.1bn average estimate of brokers compiled by the bank. Revenue rose by 30% to $66.1bn and a $2bn share buyback was announced.

However it also took a $3bn impairment on its stake in China's Bank of Communications, which contributed to a surprise fall in fourth-quarter profits to $1bn from $5bn a year earlier. The bank noted that China’s recovery from the Covid pandemic had been tougher than expected, with the severe problems in country’s heavily-indebted property sector dragging on growth.

Expected credit losses of $3.4bn were "notably related to mainland China commercial real estate exposures".

Chief executive Noel Quinn said the bank remained confident in the resilience of the Chinese economy, “and the growth opportunities in mainland China over the medium to long term".

AJ Bell investment director said HSBC's outlook was "a bit of fudge with the company expecting to hit previously guided returns in the mid-teens for 2024, but only once some one-offs are stripped out".

"Costs are moving higher and loan losses are also going in the wrong direction from the bank’s perspective. It is worth saying that the write downs announced today are accounting decisions and have zero impact on HSBC’s capital ratios or ability to dole out cash to shareholders."

“Amid all the noise, news of a $2bn share buyback has been lost which feels a little unfair given the company will have returned upwards of 10% of its market valuation in dividends and buybacks in respect of 2023."

Reporting by Frank Prenesti for Sharecast.com