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People wearing face masks walk past a HSBC branch of HSBC in March. Photo: AP

HSBC, Standard Chartered seen reporting earnings setback on Covid, Ukraine war fallout. Can they surprise the market?

  • HSBC, Standard Chartered are among big Hong Kong lenders to report their first quarter results this week
  • Hong Kong’s economic growth expected to slow to 2.8 per cent this year as coronavirus control measures weigh on activity, according to Moody’s
When HSBC and Standard Chartered report their first-quarter results this week, investors will be looking for some clues: how much did the fifth wave of Covid-19 outbreak and the Ukraine war eat into their profits.
A surge in infections from the Omicron variant last quarter prompted lenders to temporarily close about a quarter of their branches across Hong Kong, depressing their stock prices from near a two-year high. Russia’s invasion of Ukraine also drove up commodity prices, pressuring interest rates in key markets at home and elsewhere.

Major American banks, which finished reporting last week, may offer some guidance, Citigroup analyst Yafei Tian said in a research note.

“Generally, market revenue was better than expected, investment banking was soft, capital was weak and provisions were higher, partially due to Russia exposures,” she wrote. “Read across to HSBC and Standard Chartered is that the top line can be supported by robust sales and trading.”

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HSBC, the largest of the city’s three currency-issuing banks, will report on Tuesday,, is expected to report a 36 per cent drop in pre-tax profit to US$3.7 billion from a year earlier, based on consensus from analyst forecasts compiled by the bank.

Standard Chartered, which reports on Thursday, is seen making a pre-tax profit of US$1.04 billion, according to a consensus compiled by the bank. It made US$1.4 billion a year earlier, driven in part by gains in its wealth management business.

Both lenders are based in London but generate much of their revenue in Asia and count Hong Kong as one of the single-largest markets.

HSBC fell 1.6 per cent on Friday, taking its decline from February 9 peak to 8.7 per cent. Standard Chartered dropped 0.3 per cent to HK$52.50, or 15 per cent below its February 21 high.

The war in Ukraine and sporadic lockdowns in more than 50 municipalities and provinces in mainland China have worsened ongoing supply-chain disruptions, stoking commodity prices. A dramatic surge in nickel prices forced the London Metal Exchange to suspend trading for a week amid billions of dollars of margin calls.

The increase in energy prices is adding to an ongoing cost-of-living crisis in the UK, HSBC’s second biggest market. Consumer prices rose 7 per cent in March, the most since 1992. In the US, inflation quickened by 8.5 per cent in March, the fastest since 1981.

Amid policy tightening bias in Western economies, Citigroup predicts US interest rates could reach 2.25 per cent by January 2023. Some voting members of the Fed have called for a lift-off to 3.5 per cent rate by the end of the year.

That will have implications for Hong Kong, whose linked exchange rate system means the monetary authority will also raise its base rate in lockstep to sustain its dollar peg.

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While higher rates may boost banks’ lending margins, Hong Kong lenders also are cautious about hiking borrowing costs in a slowing economy. Hong Kong’s economic growth is expected to cool to 2.8 per cent from 6.4 per cent in 2021, Moody’s Investors Service forecasts.

“Strict border controls and pandemic restrictions have led to an outflow of people and this, coupled with potential future measures to combat a new wave, will weigh on economic activities,” Sonny Hsu, a Moody’s credit officer, said in a research note.

The outlook for the city’s banking system remains stable as conservative underwriting by lenders and low leverage among borrowers should keep asset quality strong, Hsu said. The war in Ukraine, however, is likely to weigh on the capital markets and heighten volatility, he added.

Operating income at Hong Kong banks likely bottomed in the first quarter, and should improve in 2022 as net interest margins widen, according to Fitch Ratings. That should help mitigate impairment charges from Covid-related curbs, it added.

Standard Chartered CEO Bill Winters speaks during an interview in Central in August. Photo: May Tse

“We believe 1Q22 results are likely to be muted, due to lower fee-related income, particularly in the wealth-management business,” Franco Lam, director for financial institutions at Fitch, said in a research note. Margins were likely stable as short-term rates only climbed from end-quarter, he added.

Investors would be interested to see if Standard Chartered announces an additional business revamp as CEO Bill Winters seeks US$1.3 billion of cost savings over the next three years. That is part of its aim to reach a long-term return on tangible equity of 10 per cent.
Earlier this month, the bank said it would fully exit seven markets in Africa and the Middle East and focus solely on corporate and institutional banking in two additional African markets to sharpen and simplify its operations in the region.

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