HSBC Reports Disappointing Profit Numbers in Face of China Market Slump
Europe’s biggest bank HSBC reported on Feb. 18, 2019 a 15.9 percent rise in pre-tax profits for its annual earnings in 2018 — falling short of market expectations — with analysts and HSBC officers citing an economic slump in China, Britain, and Hong Kong as the chief cause of the disappointing report. The large drop in fourth-quarter revenue sent expected share price for the bank tumbling by 3.3 percent on Feb. 20, 2019.
HSBC counts roughly 75 percent of its profits as stemming from its Asian customer base; its stark drop in revenue and profits may be symbolic of a wider trend plaguing financial markets across Asia.
The deepening of the trade war between China and the United States played a key role in the bank’s financial problems. Analysts pointed to HSBC’s business activities in the realm of “facilitating international trade between Asia and the rest of the world” as exposing the company to increasing volatility in the present, with “tariff spats between the US and China” being “hardly helpful” and beginning to hurt the bank’s customers in Asia and beyond.
Other analysts expressed their disappointment with HSBC’s performance being “so impacted by short term market conditions” and highlighted the need for HSBC to pivot towards Asia and expand its less volatile retail and commercial banking activities.
HSBC had recruited a number of senior investment bankers — including former JP Morgan banker Greg Guyett, who replaced Matthew Westerman as co-head of its investment banking business after his unexpected departure — in order to mitigate the situation in the last months of 2018. HSBC announced on Feb. 5, 2019 that over 50 bankers would be cut from their investment banking payroll as part of an “annual performance review,” an announcement which in retrospect that appears to be a possible signal of the disappointing 2018 profit numbers publicized a little less than two weeks later.
During his presentation of the annual numbers for 2018, HSBC Chairman John Flint called his bank’s performance in the fourth quarter of 2018 “undeniably weak.” However, Flint went on to contend that the bank is still on track with its goals, which include accelerated growth from both Asia and the UK’s international audience.
Additionally, Flint acknowledged the “prolonged uncertainty” regarding Brexit and stated that HSBC was prepared to meet the challenges posed by the United Kingdom’s exit from the European Union, with HSBC expanding its activities on the European Continent, shifting customers to HSBC France, and diversifying its product offerings in France, the Netherlands, and Ireland.
However, while Flint pledged to continue HSBC investment in Asia, he pointed to sharply slower loan growth to Asian customers as a warning about impending weaker global economic prospects. Last June, Flint had stated that HSBC was planning to invest around $17 billion in Chinese technology; however, with the blunted profit numbers for 2018, Flint also stated that HSBC may delay investment plans in order to maintain revenue growth — which may bode ill to Chinese banks that are struggling to grow in a more hostile environment.
HSBC Group Chairman Mark Tucker also assured investors in a separate statement on Feb. 19 that “despite a challenging external environment,” the bank is in “in a strong position,” with “all of our global businesses deliver[ing] increased profits.” True to his word, the bank’s reported revenue was 53.8 billion USD, an increase of 5% from 2017.
Whether or not HSBC is a bellwether for future global financial prospects remains to be seen. The disappointing revenue numbers reported by HSBC could lead to a simultaneous fall in customer investing confidence as stock markets slip and financial institutions also struggle to return to an upward economic trend after a decade of post-crisis restructuring due to a worsening global economic outlook.