HSBC Holdings plc 's ( HBC ) earnings per
share came in at 34 cents in the first quarter of 2013,
substantially surpassing the prior-quarter earnings of 16 cents and
the year-ago earnings of 13 cents. Net profit came in at $6.4
million, rising massively from both the prior quarter and the
year-ago quarter.AGRI BANK CHINA (ACGBY): Get Free ReportCHINA MERCH BK (CIHKY): Get Free ReportHSBC HOLDINGS (HBC): Free Stock Analysis ReportUTD OVERSEAS BK (UOVEY): Get Free ReportTo read this article on Zacks.com click here.Zacks Investment
The robust results were driven by top-line improvement and growth
in total operating income. Moreover, the core results were
favorably impacted by reduced operating expenses. However, dismal
performance in some divisions acted as a headwind.
HSBC exhibited significant progress in strategically reshaping
itself and improving its returns. Since the beginning of 2011, the
company announced the divestiture or closure of 52 of its
non-core/unprofitable operations across the globe. Moreover, HSBC
generated cost savings of $0.4 billion in the reported quarter,
leading to annualized total savings of $4.0 billion.
Performance in Detail
Underlying profit before tax was $7.6 million in the quarter,
surging 34.2% year over year. The rise primarily reflected increase
in revenues and reduced loan impairment charges along with an
improvement in the US consumer and mortgage lending
Total revenue (on an underlying basis) stood at $17.6 million,
climbing 4.5% from $16.8 million in the previous year quarter.
Improvement was largely driven by growth in revenues from
residential mortgages and commercial banking in Hong Kong and UK
and financing and equity capital markets.
Total operating income rose 7.5% from the year-ago period to $22
million. The rise was mainly due to increase in net trading income,
dividend income and other operating income, partially offset by
lower net interest and fee income.
Total operating expenses were $9.3 million, decreasing 9.7% from
$10.4 million in the prior year quarter. The decline was mainly due
to decrease in charges related to UK customer redress programmes
and a reduction in restructuring and related costs.
The underlying cost efficiency ratio decreased to 53.2% from 56.9%
in the previous year quarter. The fall in efficiency ratio
indicates higher profitability.
Performance by Business Line
Retail Banking and Wealth Management: The segment reported $1.6
million in pre-tax profit, down 28.2% from $2.2 million in the
prior year quarter. The fall was primarily due to decrease in
revenue growth, partially offset by lower loan impairment
Commercial Banking: The segment reported pre-tax profit of $2.18
million, down 0.8% from $2.20 million in the previous year quarter.
The fall was mainly due to decrease in revenues, partially offset
by decline in loan impairment charges.
Global Banking and Markets: Pre-tax profit for the segment was
$3.6 million, increasing 16.5% year over year. Segment results
improved on the back of higher revenues, offset in part by rise in
loan impairment charges.
Global Private Banking: Pre-tax loss for the segment was $125
million compared with the pre-tax profit of $286 million in the
previous year quarter. The deterioration was due to increase in
operating expenses, fall in revenues and higher loan impairment
Other: The segment recorded a pre-tax profit of $1.2 million in
the reported quarter against pre-tax loss of $3.4 million in the
prior year quarter. This was primarily due to increase in revenues
and decrease in operating expenses, partially offset by higher loan
Profitability and Capital Ratios
Profitability ratios improved in the quarter. Annualized return on
equity rose to 14.9% from 6.4% in the previous year quarter.
Moreover, pre-tax return on risk-weighted assets (annualized)
increased to 3.1% from 1.4% in the prior year quarter.
HSBC continued to generate capital from its retained profits. The
company's core tier 1 ratio as of Mar 31, 2013 improved to 12.7%
compared with 12.3% as of Mar 31, 2012. Total capital ratio also
rose from 16.1% recorded as of Dec 31, 2012 to 16.7% as of Mar 31,
HSBC is bearing the brunt of weak revenue growth in its mature
markets mainly due to the ongoing low interest rates and regulatory
restrictions. However, the company is poised to benefit from its
extensive global network, strong capital position, business
re-engineering and solid asset growth.
Further, HSBC's cost containment measures are expected to
extensively help it counter the economic pressures. However, high
inflation in some key Asian markets, sluggish loan growth,
insufficient core operating performance and increased wage
inflation are apprehended to restrict the company's growth in the
HSBC currently carries a Zacks Rank #3 (Hold). However, other
foreign banks that are worth considering include China
Merchants Bank Co., Ltd . ( CIHKY ) and
United Overseas Bank Limited ( UOVEY ) with a Zacks
Rank #1 (Strong Buy) and Agricultural Bank of China
Limited ( ACGBY ) with a Zacks
Rank #2 (Buy).