HSBC shares climbed to a six-week high in Hong Kong yesterday after the bank's third-quarter pre-tax profit grew 30 per cent year on year. But analysts warned the softening revenue trend would continue for the bank, which is coming to the end of its restructuring.
The stock rose 1.4 per cent to close at HK$86.35 after Europe's largest bank posted a pre-tax profit of US$4.5 billion for the quarter, up 30 per cent from last year but a decline of 19.6 per cent from the previous quarter.
Operating profit was down 9 per cent on a quarterly basis, consistent with recent quarters.
"HSBC is struggling to achieve sustained growth in core revenues and, with the end of its restructure, has no levers left to drive pre-provision profit higher," a CLSA report said.
The lender's prospects are also being clouded by fines and regulation costs. UBS said it estimated total customer redress costs plus the bank levy in Britain would cost the group close to US$2 billion this year, from US$2.8 billion last year. However, ongoing litigation and regulatory headwinds facing the sector will make its profit vulnerable once huge provisions have to be made.
But some analysts were pleased with HSBC's results in the absence of massive provisions and costs for the quarter - Morgan Stanley, JP Morgan and UBS marginally raised their target prices.
The results revealed some positive signs, such as a slower decline in trade financing profits and continued expansion of the business in Britain, according to Morgan Stanley. It raised the price target to HK$91 from HK$89 and maintained an "equal-weight" rating.
UBS also raised the price target to HK$90.50 from HK$90.10 and maintained a "neutral" rating. "For HSBC to re-rate, we continue to believe it will need to see an end of de-leveraging and a return of revenue growth at a group level [even better if this is accompanied by a rise in US short rates]," analyst Stephen Andrews said in a report.