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HSBC Says Business Pivot To Asia Pays Off As Profits Rise

Tom Burroughes

20 February 2018

(Updates with share price, analysts' reaction.)

UK/Hong Kong-listed banking group today reported a surge in its profit before tax for 2017, coming in at $17.2 billion, from $7.1 billion a year earlier. On an adjusted basis, the rise wasn’t as dramatic, with pre-tax profit at $21 billion, from $18.0 billion a year before.

The bank said its reported revenue was $51.4 billion last year, up from $48 billion.

Repositioning of the global private bank – it has consolidated booking centres and made other changes – affected revenues but held stable over the course of last year, Stuart Gulliver, HSBC’s global CEO, who is stepping down, said in a statement. On an adjusted basis, the private banking arm of HSBC rose 10 per cent in its target markets, he said. 

Adjusted pre-tax profit at the private bank stood at $300 million last year, unchanged from a year earlier, HSBC said. Global private banking logged $15 billion of inflows of new money last year, with Hong Kong seeing particularly strong growth. At the end of 2017, this arm of the bank held $330 billion of client assets, up from $298 billion a year before. In the fourth quarter, adjusted revenue rose two per cent: revenue growth in Hong Kong and certain other areas was partly offset by a $22 billion reduction in client assets from repositioning of the business.

HSBC’s common equity tier 1 ratio – a common measure of a bank’s capital strength – was 14.5 per cent at the end of 2017, widening from 13.6 per cent at end-2016.

Gulliver said the repositioning of the bank towards Asia, and its run-off of legacy business issues in countries such as the US, was paying dividends.

“The group’s business mix is more oriented towards Asia, improving our ability to channel the economic and social changes taking place within the world’s fastest growing region. Asia contributes a larger proportion of the Group’s profits than in 2015, reflecting regional investment in growing our loan book, building our insurance and asset management businesses, and connecting customers to opportunities within the region,” Gulliver said.

The improved profit figure wasn't enough to cheer investors; shares in HSBC were down about 3.6 per cent, at 733.1 pence per share, ar 12:15 GMT today.

Killick & Co, the stockbrokerage, said the performance of private banking in Asia was a standout: "While these results were not as good as the market expected, we do see continued progress on the normalisation of the business and the continued pivot towards Asia, which grew revenue 15 per cent and now represents 50 per cent of group revenue and 44 per cent of group loans. Underlying returns remain strong, with all divisions having a double-digit return on tangible equity other than Global Private Banking. The stock is currently trading at 14x 2018 earnings and offers a 5.1 per cent dividend yield, a fair valuation for a global bank with a strong Asian growth profile."

 Justin Cooper, chief executive of Link Market Services, part of Link Asset Services, said in a note: "HSBC is comfortably the second largest dividend payer in the UK, but a long process of restructuring has meant almost no growth in dividends for four years. As such a large player, it has therefore acted as a significant drag on the overall performance of dividends from UK plc. The bank is back in growth mode, but we shouldn't expect a bounce-back in payouts in 2018. Moreover, the dollar is weaker against the pound year-on-year, so in sterling terms, even a modest increase is likely to be obscured by exchange-rate effects."

As previously reported, John Flint, CEO of retail banking and wealth management, takes over from Gulliver, who is retiring from the post.