HSBC’s Quarterly Profit Plunges 80% on China Writedowns

HSBC, a leading global banking institution, has reported a significant downturn in its quarterly profit, with a staggering 80% plunge attributed to a $3 billion charge on its stake in a Chinese bank and additional write-downs on commercial real estate. The announcement underscores the continued impact of China’s economic slowdown on international lenders.

According to HSBC’s statement on Wednesday, profits for the final quarter of 2023 plummeted to $1 billion from $5 billion in the same period a year earlier. While the full-year pretax profits surged by 78% to $30 billion, driven by higher interest rates, the disappointing conclusion to the year caused the bank to miss analysts’ expectations of $34 billion.

The market response was swift, with HSBC’s shares plunging nearly 8% in early London trading, erasing gains accumulated over the past year.

HSBC’s chief executive, Noel Quinn, attributed the impairment on the Bank of Communications stake to a “technical accounting adjustment,” asserting that it does not alter the bank’s positive outlook on China’s economy. Despite regulatory challenges, HSBC remains committed to China, forecasting a 4.9% expansion in the country’s economy for 2024.

With a significant portion of its profits originating from Asia, HSBC’s strategic position in the region is underscored by its 19% stake in Bank of Communications. However, recent legal troubles and regulatory scrutiny faced by Chinese banks have cast a shadow on HSBC’s investments.

Analysts described the fourth quarter as “messy,” attributing the challenges to a series of one-off events. Apart from the Chinese bank impairment, HSBC reported a charge for hyperinflation in Argentina, a write-down on the sale of its French retail network, and impairments related to unsecured lending in Mexico.

The bank’s cautious outlook for 2024 reflects signals from central banks, hinting at potential interest rate cuts. HSBC anticipates lower net interest income for the year, signalling ongoing challenges in the global economic landscape.

Despite these setbacks, HSBC remains committed to its long-term strategy, announcing a further share buyback worth up to $2 billion and a dividend for shareholders. The bank’s focus on bolstering profitability is evident in its net interest margin, which rose to 1.66% for the full year, buoyed by higher interest rates.

HSBC’s resilience in navigating turbulent market conditions underscores its position as one of the world’s largest deposit-taking institutions. However, challenges persist as the bank strives to maintain profitability amid evolving regulatory environments and economic uncertainties.