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Fitch: HSBC's 3Q Profit Resilient Despite Volatile Asian Markets
November 3, 2015 / 12:08 PM / 2 years ago

Fitch: HSBC's 3Q Profit Resilient Despite Volatile Asian Markets

(The following statement was released by the rating agency) HONG KONG/LONDON, November 03 (Fitch) HSBC Holdings plc's (AA-/F1+/Stable) reported pre-tax profit of USD6.1bn in 3Q15 was overall sound, in Fitch Ratings' view, despite being supported by a non-recurring USD1.1bn fair-value gain on own debt. Adjusted for this and other non-recurring items, pre-tax profit was USD5.5bn, or 14% lower than in 3Q14. Headwinds in the quarter came from a drop in insurance-related income due stock market corrections predominantly in Hong Kong and China, lower fee income on UK overdrafts, reduced profit in the US run-off portfolio and weak performance in the Global Banking and Markets division's (GB&M) rates and credit businesses. FX income in 3Q15 did not benefit from similarly strong client flows as in 3Q14, but most other client-facing GB&M activities, including equities, capital financing and balance-sheet management held up well. HSBC's target of achieving revenue growth that is faster than cost growth will remain a significant challenge well into 2016. The increase in adjusted revenue in 9M15 (1.5%) lagged further behind the rise in adjusted costs (5.6%), resulting in the gap, known as jaws in the banking industry, widening to -4.1%. from -2.9% in 1H15. The group benefits from reliable revenues from transaction banking, which grew by 3% to USD8.4bn for the first nine months accounting for 18% of the group total. The group's capitalisation has been shored up by the release of risk-weighted assets (RWAs) of USD82bn in 9M15, USD50bn of which was in GB&M. Retained earnings net of dividends generated 17bp of RWAs in 3Q15 compared with 23bp in 2Q and 24bp in 1Q as per Fitch's calculations. Consequently, HSBC's regulatory end-point common equity Tier 1 ratio was 11.8% at end-September 2015, Fitch Core Capital (FCC) ratio at 12.6% and the group's leverage ratio at 5.0%, compared with 11.1%, 11.7% and 4.8%, respectively, at end-2014. Loan impairments have remained low at USD638m, or 24bp of loans, at end-September 2015 (annualised) with no material deterioration reported in its China exposure. Fitch estimates HSBC's exposure to China at USD173bn, or a reasonable 1.2x Fitch core capital, based on its Hong Kong subsidiary's regulatory disclosure at end-June 2015. This mainland China exposure comprises claims on banks (26%), central government (26%), borrowers residing in China (25%), foreign borrowers for use inside China (10%), local governments (7%) and others (5%). The significant difference between Fitch's estimate of the bank's China exposure and HSBC's reported mainland assets of USD96bn, of which USD53bn were on-shore loans, is Fitch's inclusion of cross-border activities and off-balance sheet items. Asia contributed a strong 66% to 9M15 profit due to the USD1.4bn non-recurring gains on the sale of HSBC's stake in China's Industrial Bank booked in 2Q. Europe's share was 19% while North America and the Middle East contributed 6% each and Latin-America 3%. The two home markets UK and Hong Kong contributed 14% and 41%, respectively, in 9M15. UK's adjusted pre-tax profit improved to USD778m in 3Q15 compared with USD377m in 2Q15, mainly due to lower income in the retail and wealth management division and higher regulatory and compliance costs. Contact: Sabine Bauer Senior Director +852 2263 9966 Fitch (Hong Kong) Limited. 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Claudia Nelson Senior Director +44 203530 1191 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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