HSBC earnings likely to be hit by euro-zone woes
HSBC, Europe's biggest bank by assets, is scheduled to report its first-half earnings on Monday amid growing trouble in the euro zone that may affect its profits and force it to build a stronger capital base.
Analysts at major investment banks have mixed views on the outlook for HSBC's shares because of the rocky economic environment. Traders say the sentiment among retail investors in Hong Kong for HSBC stocks is uncertain too, while institutional investors generally have no appetite for financial stocks with big exposure to business in Europe.
UBS analysts estimated in a recent report that HSBC's first-half profit before tax would reach US$11.9 billion. According to a Bloomberg survey, institutional investors expected HSBC's first-half profit before tax to be between US$10.9 billion and US$14.2 billion.
Reported interim pre-tax profit in 2011 was US$11.5 billion.
In its interim results announcement last year, the bank said it would lay off 30,000 employees globally - about 10 per cent from a workforce of 296,000 - by 2013.
HSBC will also exit markets and plans to cut down annual costs by up to US$3.5 billion by 2013.
UBS said HSBC was trading at historically low valuations and had retained its GBP6 (HK$72) price target.
Deutsche Bank analyst Tracy Yu and her colleagues in a co-authored report said HSBC was solidly profitable, with strong liquidity and a growing capital base, but was facing macro uncertainty.
Deutsche Bank and UBS placed 'hold' and 'neutral' recommendations, respectively, on HSBC shares.
Bank of America-Merrill Lynch has an 'underperform' recommendation while Goldman Sachs in a more upbeat analysis gave HSBC a 'buy' rating and expected big returns in its share performance in coming months.
Deutsche Bank analysts said in its report that investors would focus on the ongoing US money laundering and compliance investigation and the potential strategic and financial ramifications of the case.
The Libor regulatory investigations and civil suits in London as well as US credit costs will also be in investors' focus and that may move HSBC's share price, according to the report by Deutsche Bank.
Three of Britain's biggest lenders - HSBC, Royal Bank of Scotland and Lloyds - are among the 17 banks and one broker that are being investigated following Barclays' involvement in the Libor rate-fixing scandal. The scandal, some analysts say, has become the latest major concern for investors trading European banking stocks, in addition to other risks that the euro zone might collapse if Greece or even Spain chooses to exit.
In China, HSBC is closely watching whether Beijing can maintain its economic growth at a stable pace. The economic slowdown will be a major challenge for banks that want to expand their lending.
HSBC is one of the big international banks that have strong staff and branch coverage in the vast nation. However, a recent report by PricewaterhouseCoopers shows the total market shares of foreign banks in China remains below 2 per cent.
In Hong Kong, HSBC closed up 2.64 per cent, or HK$1.65, at HK$64.15, outpacing a 2 per cent rise in the benchmark Hang Seng Index.
