HSBC Holdings PLC noted its biggest annual net profit since 2018 and announced rising interest rates were likely to increase future returns, even as the banking giant took a charge against possible fallout from the pressure in China’s property market.
The stats observe a series of strong results for the London-based lender, in which it has slashed its stockpile of provisions in comparison to pandemic-related bad loans, reinstated earnings and submitted a $2 billion buyback.
“We have good velocity coming into 2022 and are confident that we can proceed with to execute against our strategy,” Chief Executive Noel Quinn announced in a statement Tuesday.
Investors are also reappraising HSBC’s revenue potential—and bidding up its stock—as global bond results in rising uncertainty of rapid action by the Federal Reserve and other prominent banks. Making loans is generally more successful when benchmarking borrowing expenses are higher and HSBC is seen as extremely sensitive to transitions in interest rates.
HSBC announced profit attributable to its common shareholders totalled $12.6 billion for 2021, as it profited from a $928 million reduction in anticipated credit losses. Annual net profit was up sharply from $3.9 billion a year earlier and broadly matched agreement estimates.
In the fourth quarter, HSBC doled a fresh $450 million for likely credit losses, mostly wrapped to real estate. In the past few months, numerous developers—including industry heavyweight China Evergrande Group—have defaulted on their foreign debt.
The bank played back that it had no exposure to the developers ruled on riskiest by the Chinese government—those that have breached all of the “three red lines” on leverage. But Mr. Quinn said in a talk that HSBC took the charges after “market conditions for all creators in China worsened,” with liquidity tightening and elevated uncertainty about firms’ capacity to refinance.
HSBC announced it had expanded about $21.3 billion of loans and guarantees to mainland Chinese estate companies, as of year-end—a 9% increase from end-June—due primarily to borrowers drawing down their loans. The bank reported that sentiment on the sector had expanded since the start of 2022, but that tension remained.
For the last three months of the year, HSBC’s net profit stood at $1.79 billion—a downshift from the July to September period, but up sharply approximated with the same quarter a year earlier.
The bank announced if central banks lifted interest rates in line with market intentions, the boost to its net interest earnings would help it hit its target of a 10% return on tangible capital in 2023, a year earlier than it formerly expected.
HSBC on Tuesday also announced it is the subject of an investigation by the U.S. Commodity Futures Trading Commission into the intention of nonbank ratified messaging channels.
