Poor earnings push HSBC shares into 9.1pc tumble

PUBLISHED : Friday, 11 November, 2011, 12:00am
UPDATED : Friday, 11 November, 2011, 12:00am


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Short-sellers swooped on HSBC yesterday, sending its shares into their steepest decline since March 2009 as the market reacted to disappointing third quarter earnings and uncertain outlooks for Europe and the global economy.

HSBC accounted for almost 10 per cent, or HK$672.8 million, of the short-sell turnover value in Hong Kong yesterday, making it the most shorted stock in terms of turnover value, according to the city's stock exchange.

The bank's share price slumped 9.13 per cent, or HK$6.20, to HK$ 61.70, while the Hang Seng index dropped 5.25 per cent.

HSBC's third-quarter underlying profit, which excludes any mark-to-market gains or losses related to the bank's own debt as well as any one-off gains or losses, reached US$2.96 billion, a drop of 36 per cent compared to the same time last year.

While markets were already expecting a slowdown in the bank's global banking market business, some analysts said they did not foresee an increase in bad loans in the bank's US operations.

Louis Wong Wai-kit, director of Phillip Capital Management, said: 'I found the write-down in the US mortgage business to be quite a nasty surprise.'

The bank's impairment charges for the quarter rose by 19 per cent year-on-year to US$3.89 billion.

James Antos, a senior analyst at Mizuho Securities, said most of the increase came from North America, which contributed US$2.39 billion to the total credit bill.

Analysts said rising bad loans in the US was not the only problem that the bank faced. John Wadle, head of regional banks at Mirae Asset Securities, said: 'HSBC is being hit by problems in the US and Europe and a slowdown in China. There is no room for them to avoid the problems,' hence the disappointing revenue and weak underlying earnings. Investors are concerned that the bank will not be able to increase dividends for another year or so, Wadle said.

Wadle said banks in Europe did not trust each other, one example being the way HSBC hoarded cash and kept it with the European Central Bank. Investors were becoming increasingly concerned about how much direct and counter-party exposure HSBC has to European countries and banks.

HSBC's exposure to the troubled European sovereign debt markets, such as Portugal, Greece and Italy, amounted to US$ 5.5 billion, down from US$ 8.2 billion in June.

Counting both on and off balance sheet exposure to sovereigns and banks in the region, HSBC's risk amounted to US$15.6 billion, about 9 per cent of the bank's total equity, Antos said.

HSBC's chief executive, Stuart Gulliver, said on Wednesday that the third quarter was a tough period for the bank and the industry faced 'significant headwinds' because of political, regulatory and economic uncertainties. Gulliver fumed at a proposal from Britain's Independent Banking Commission that placed stricter rules on capital. The proposal, which would cost HSBC an extra US$2.1 billion a year, could push the bank one step closer to relocating its headquarters away from London.


HSBC's impairment charges for the third quarter in US dollars, up 19 per cent year-on-year, mainly because of problems in the US