Trading Rebound Likely to Bolster HSBC's Earnings in Q1

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HSBC HoldingsHSBC is scheduled to announce first-quarter 2018 results on May 4, before the market opens. Results, this time, are expected to benefit from reversal in trading activities and decent investment banking performance. However, persistent low rate environment is likely to weigh on the bank's revenues.

In the last reported quarter, HSBC incurred a loss due to charges related to the U.S. tax reforms and other significant non-recurring items. Notably, the bank witnessed a rise in revenues while higher operating expenses and credit cost acted as headwinds.

Looking at the price performance, HSBC stock has lost 7.7% on the NYSE during the three months ended Mar 31, 2018 compared with 2% decline of the industry it belongs to.

Will HSBC stock be able to rebound post first-quarter earnings release? It majorly depends on whether the firm is able to impress the market with its results.

Factors to Influence Q1 Results

Rebound in trading activities: After three consecutive quarters of witnessing muted activities, volatility is back in the market. In the last two months of the first quarter, the markets experienced significant volatility. The trade war between the United States and China, higher inflation expectation, tightening of monetary policy by the Fed and a sharp sell-off in the tech sector incited volatility. Thus, HSBC is expected to report a rise in trading revenues in the to-be-reported quarter.

Decent investment banking performance: The trend of pocketing solid underwriting fees for debt issuance may have reversed to some extent in the to-be-reported quarter, as rising rates are likely to have slowed down corporates' involvement in these activities. Thus, HSBC's debt underwriting fees are expected to decline.

However, strong equity issuances globally are expected to have boosted IPOs and follow-on offerings. So, the related fees are projected to increase for HSBC. Further, a potential rise in fees from increasing M&As in certain sectors will likely lead to a slight rise in advisory revenues for the bank.

Rise in loan demand to support interest income: While a low interest rate environment across several major economies continue hampering interest income growth, increase in loan demand is likely to offset it to some extent. So, HSBC is expected to report a modest improvement in interest income.

Costs to remain manageable: HSBC has been restructuring its operations. These efforts are expected improve the bank's operating efficiency and trim costs. However, legal and other regulatory expenses are bound to adversely affect its bottom line.

HSBC currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Earnings Schedule of Other Foreign Banks

Mitsubishi UFJ Financial Group, Inc. MUFG is scheduled to announce results on May 15 while both Canadian Imperial Bank of Commerce CM and The Toronto-Dominion Bank TD are expected to report on May 24.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TD , CM , HSBC , MUFG

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