EUR 850.00 For Business Accounts Only

Morningstar | HSBC Reports Mixed 1H Results as Investment Outlays Drag on Good Segment Performance

Narrow-moat HSBC reported mixed first-half results as profits before tax increased 5% to $10.7 billion, helped by advantageous currency movements and net favourable changes in significant items. Cleaned of these effects, adjusted profits before tax lagged with a decline of 2% to $12.1 billion compared with the same period last year. Revenue growth of 2% on an adjusted basis and lower expected credit losses of $407 million did help results but were ultimately more than offset by 8% higher operating expenses, mostly stemming from growth investments in retail banking and wealth management and global banking and markets. We maintain our fair value estimate of GBX 704 per share and narrow moat rating.

In June, HSBC laid out its strategic plan to bring the group back to growth by 2020 with a focus on Asia, which currently constitutes 49% of the group’s revenue, a turnaround of its low-return business in the United States, and improvements to its capital efficiency. We expect more investments in the business, as we saw in the first half of the year, to continue to obscure results for the rest of the year but to bear fruit in the medium term. As such, we are not disheartened by the slightly negative performance of the bottom line and instead point to the strong segment results excluding the corporate center. All segments outperformed the same period last year, with retail banking, wealth management, and commercial banking the biggest gainers. HSBC’s return on tangible equity in the first six months of 2018 was 9.7% compared with its target of above 11% by 2020. Its common equity Tier 1 ratio stands at 14.2%.