HSBC earnings fall on hit from China bank stake

(Sharecast News) - HSBC reported lower-than-expected first half profits as it took a large hit from its stake in China's Bank of Communications. Pre-tax profit fell by $5.7bn to $15.8bn with the BoCom charge coming in at $2.1bn. Second-quarter earnings were down 29% year-on-year to $6.3bn, compared with forecasts of $6.99bn, according to consensus figures compiled by the bank.

HSBC's stake was diluted after a recapitalisation which was designed to offset the impact of the waning Chinese economy and its beleaguered property sector. It also took a $400m charge related to "challenging market conditions" in Hong Kong's commercial real estate sector, as the oversupply of nonresidential properties put "continued downward pressure on rental and capital values".

The bank also announced a $3bn share buyback.

HSBC said it was "well-positioned to manage the changes and uncertainties prevalent within the global environment in which we operate, including in relation to tariffs".

"We have modelled a disruptive tariff scenario that includes significant reductions in policy rates, together with broader macroeconomic deterioration."

However, the lender warned that demand for lending would remain muted for the rest of the year but expected more growth in its wealth division.

"We continue to expect double-digit percentage average annual growth in fee and other income in Wealth over the medium term," it said.

Matt Britzman, senior equity analyst at Hargreaves Lansdown called the quarterly report "another messy set of results for HSBC".

"Headline numbers have, once again, been skewed by one-off items, and the 29% drop in second-quarter profit before tax is a poor measure of performance. Underlying performance was far more encouraging, with pre-tax profit coming in comfortably ahead of consensus, driven by strong growth in wealth management," he said.

"Capital levels remain robust enough to support another $3bn buyback, but the medium-term outlook is murky. While guidance was technically unchanged, it came with caveats. Tariffs are a concern, not necessarily due to their direct impact, but because of the potential for broader economic pressure."

"Management included a subtle warning that suggests some unease about the road ahead. HSBC's Asian listing traded lower following the results, reflecting the uncertain guidance, but there's room for shares to recover if management can reinforce confidence in the guidance on today's call. Still, the outlook for HSBC is a lot muddier than some of its UK-focused peers like NatWest and Lloyds, where the path to earnings growth is much clearer."

Reporting by Frank Prenesti for Sharecast.com