HSBC’s ‘pivot to Asia’ helps Q3 profit beat expectations

Lender’s profit for Q3 is US$5.44b, 1.4pc lower than last year, but marginally better than analyst forecasts, which had predicted US$5.41b

PUBLISHED : Monday, 30 October, 2017, 1:05pm
UPDATED : Monday, 30 October, 2017, 11:05pm

HSBC’s much-trumpeted “pivot to Asia” helped the bank beat analysts’ expectations during the third quarter.

After adjusting for one-off items, the lender’s profit for the third quarter of this year came in at US$5.44 billion, 1.4 per cent lower than the same period last year but marginally better than a poll of analyst forecasts compiled by the bank, which had predicted US$5.41 billion.

The decline was the result of an increase in operating expenses, but this was mostly mitigated by a rise in revenues from the bank’s main business lines, particularly in Hong Kong, China, and Asia more broadly.

“The latest results confirm a shift towards Asia,” said Joseph Dickerson, a banking analyst at Jefferies.

“In 2017 to date, for instance, revenue from the group’s Asian businesses contributed 50 per cent of the group total, up from 46 per cent in the same period in 2016, driven by loan growth and strength in fiduciary businesses such as cash management.”

And the trend is set to continue, added others.

“There is room for further growth in revenues from Hong Kong and China, especially as interest rates rise which will help margins in Hong Kong,” said Ivan Li, Hong Kong and China market strategist at DBS Vickers Securities, pointing out growth in Asia had helped compensate for a flatter performance in Europe.

Iain McKay, HSBC’s group finance director said that HSBC had lent US$1.1 billion more in the third quarter of this year in the Pearl River Delta than it had in the same period in 2016, when total lending in the south-eastern Chinese region was very low.

Stuart Gulliver, HSBC’s outgoing group chief executive said HSBC’s “pivot to Asia”, announced in 2015, had driven over 70 per cent of the group’s adjusted profit in the first nine months of this year, which he said showed the strategy was “starting to bear fruit”.

Speaking on a call to the media on Monday, Gulliver also said that greater revenues coming from Asia would also lead to further investment in the region.

Gulliver will be replaced in February by the bank’s current group head of retail banking and wealth management, John Flint.

The banking sector is going through some major changes, and we will have to invest accordingly
Iain McKay, HSBC’s group finance director

HSBC also showed a greater willingness to spend in the third quarter than it has done in the past.

“Expenses were higher than expected as the bank continues to invest in growth and there was an additional US$300 million of performance-linked pay,” wrote Anil Agarwal head of Asia ex Japan banks research at Morgan Stanley in a research note.

This too seems set to continue.

“The banking sector is going through some major changes, and we will have to invest accordingly,” said McKay, noting the threat from online platforms in Hong Kong run by Alibaba and Tencent as examples. Alibaba also owns the South China Morning Post.

However, McKay said the bank was still targeting “positive jaws” for across a calendar year, meaning its revenues would grow faster than its costs. In the third quarter, however, HSBC that comparison show a negative 4.9 per cent.

HSBC shares fell 1.1 per cent in Hong Kong after lunch, following the announcement of the results during the midday pause.