Home Banking HSBC – capital position a disappointment, buybacks off the table

HSBC – capital position a disappointment, buybacks off the table

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Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

First quarter underlying revenue fell 3.2% to $12.5bn year-on-year, largely reflecting declines in Wealth and Personal Banking. That offset the effects of a $38.6bn increase in reported loans and advances to customers, to $1.1trn.

Underlying pre-tax profit of $4.7bn was down compared to $6.3bn, despite a small reduction in operating expenses. HSBC recognised an impairment charge of $642m, which was better than the market expected.

Regulatory changes and market conditions contributed to a weaker capital position, as measured by the CET1 ratio. HSBC therefore said further buybacks for 2022 are unlikely.

The shares rose 2.6% following the announcement.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“As the first out the gate for the major UK-listed banks to report this week, HSBC’s results have been long awaited and seen as a bellwether for the global economy. In an unsurprising turn of events, the group’s net interest income is being buoyed by rising interest rates and a very active housing market, especially in the UK. Total mortgage lending is up a huge $24bn year-on-year. The macro environment has been factored into a positive outlook for interest income, but the raising of interest rates is only one consideration. While this helps interest income rise, the wider global economic outlook is much harder to predict. The soaring inflation which these interest rate hikes are designed to address, makes the picture murky. Rumblings of recession chatter are being heard, and if this were to happen, all banks would feel the pinch.

An HSBC-specific disappointment is the weaker capital position, which could see the conglomerate fall short of its own target range. This is being caused by a number of unhelpful headwinds, including regulatory changes and a steepening yield curve. The main takeaway from this is that further buybacks are off the table for 2022. That will be a disappointment to banking investors, who may have become accustomed to the glut of buybacks from the sector in recent months.”

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