HSBC Holdings plc
) earnings per share for the first half of 2014 came in at 50
cents, 7% below the prior-year figure of 54 cents. Net profit was
$10.3 billion, 9% below the year-ago comparable period.
Adverse results were primarily due to a fall in revenues, which
reflected weaker growth in Retail Banking and Wealth Management,
and Global Banking and Markets segments. This was partially offset
by a fall in operating expenses and lower loan impairment charges.
Notably, while profitability ratios declined, capital ratios showed
Performance in Detail
The underlying profit before tax was $12.6 billion, declining 4%
from the prior-year period. The fall largely reflected lower
revenues, partially offset by a decrease in operating expenses and
lower loan impairment charges.
Total revenue (on an underlying basis) was $31.4 billion, down 4%
from $32.7 billion in the year-ago period due to non-occurrence or
fall in significant items. Excluding these, revenue remained almost
Underlying total operating expenses climbed 2% year over year to
$18.2 billion, primarily attributable to higher employee
compensation and benefits-related expenses. Notably, excluding
these significant items, operating expenses increased 4% from the
year-ago quarter due to increased investment in Global Standards,
Risk and Compliance.
Underlying cost efficiency ratio increased to 58.2% from 54.9% in
the prior-year period. A rise in efficiency ratio indicates fall in
Performance by Business Line (on underlying basis)
Retail Banking and Wealth Management:
The segment reported $3.0 billion in pre-tax profit, down 7% from
the prior-year period. The decline was due to lower revenues
partially offset by a fall in loan impairment charges.
The segment reported pre-tax profit of $4.8 billion, up 15% from
the comparable last-year period. The rise was mainly driven by
higher revenues and a decline in loan impairment charges, partly
offset by higher operating expenses.
Global Banking and Markets:
Pre-tax profit for the segment was $5.0 billion, decreasing 12%
year over year. The segment's results suffered due to lower
revenues, partly offset by decline in loan impairment charges and
Global Private Banking:
Pre-tax income for the segment was $364 million, up significantly
from $108 million recorded in the year-ago period. The improvement
was attributable to growth in revenues and lower expenses.
The segment recorded a pre-tax loss of $873 million against a
pre-tax income of $840 million in the year-ago period.
Profitability and Capital Ratios
Profitability deteriorated in the reported quarter, while capital
ratios witnessed an improvement. Annualized return on equity
declined to 10.7% from 12.0% as of Jun 30, 2013. Also, pre-tax
return on risk-weighted assets (annualized) inched down to 2.1%
from 2.6% in the prior-year period.
The company's common equity Tier 1 ratio as of Jun 30, 2014
increased to 11.3% from 10.1% as of Jun 30, 2013.
By disposing unprofitable/non-core operations, HSBC is striving to
boost its profitability amid the challenging market environment..
The company is poised to benefit from its extensive global network,
strong capital position, cost-containment measures, business
re-engineering and solid asset growth.
However, high inflation in key Asian markets, sluggish loan growth,
disappointing core operating performance and increased wage
inflation will likely limit the company's growth in the near term.
HSBC currently carries a Zacks Rank #4 (Sell).
Performance of Other Foreign Banks
UBS AG (
) reported second-quarter 2014 net income attributable to
shareholders of CHF 792 million ($890.8 million), comparing
favorably with the prior-year quarter earnings of CHF 690 million
($731.8 million). Results were attributable to prudent expense
Impacted by a disappointing top-line performance, Deutsche Bank AG
) reported net income of €238 million ($326.4 million) in the
second quarter of 2014, down from €335 million ($437.4 million) in
the prior-year quarter. However, decreased expenses, lower
provision for credit losses and a strong capital position were the
Barclays PLC (
) reported adjusted net income of £1,760 million ($2,911 million)
for first half of 2014, down 14% from the prior-year period. The
fall was primarily due to slump in investment banking income as the
company continued to face tough trading conditions leading to lower
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