HSBC Posts Loss in Q4 on Write Downs and Lower Revenues

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HSBC Holdings plcHSBC reported disappointing fourth-quarter 2016 results. The company recorded a net loss attributable to shareholders of $4.2 billion, compared with net loss of $1.3 billion in the year-ago quarter.

Following the dismal results, HSBC fell nearly 6% in pre-market trading on the NYSE. Continued challenging economic backdrop and slump in revenues are the primary reasons for this share price performance. Notably, the price reaction during the full trading session will provide a better idea about how the investors have accepted the results.

Despite witnessing steady success in its cost-saving initiatives, HSBC's results were hampered by streamlining operations and several one-time write downs. Further, lower revenues acted as a headwind. However, the company recorded lower loan impairment charges, but that was not enough to support the bottom line.

For 2016, net income attributable to shareholders was $1.3 billion, down 90% year over year.

Lower Costs and Impairment Charges Support Results, Revenues Fall

Adjusted total revenue of $11.0 billion declined 10% year over year. Significant fall in net interest income and lower net fee income were the primary reasons for the dismal top-line performance.

Adjusted loan impairment charges and other credit risk provisions plunged 72% from the year-ago quarter to $468 million.

Adjusted total operating expenses decreased 11% from the prior-year quarter to $8.4 billion. The fall reflected success of the company's restructuring plan and cost-saving initiatives.

Quarterly Performance by Business Line

Retail Banking and Wealth Management: The segment reported $990 million in pre-tax profit, rising 40% year over year. The increase was mainly driven by a decline in operating expenses and loan impairment charges, partially offset by lower revenues.

Commercial Banking: The segment reported pre-tax profit of $1.4 billion, surging 95% from the year-ago quarter. Rise was largely due to a decrease in operating expenses and lower loan impairment charges, partly offset by fall in revenues.

Global Banking and Markets: Pre-tax profit for the segment was $1.2 billion, up significantly from $491 million in the prior-year quarter. The jump was attributable to higher revenues, decrease in operating expenses and lower loan impairment charges.

Global Private Banking: Pre-tax loss for the segment was $2.8 billion as against pre-tax profit of $54 million in the year-ago quarter. The drastic deterioration was largely due to higher provisions and expenses.

Corporate Centre: The segment recorded a pre-tax loss of $4.1 billion compared with pre-tax loss of $2.8 billion in the year-ago period. The deterioration was owing to a rise in operating expenses and negative revenues.

Improved Capital Ratios

Common equity Tier 1 ratio (transitional) as of Dec 31, 2016 was 13.6%, up from 11.9% as of Dec 31, 2015. Further, leverage ratio was 5.4%, up from 5.0% as of Dec 31, 2015.

Share Repurchase Update

HSBC completed its share buyback authorization of $2.5 billion in 2016. Further, management announced an additional share repurchase authorization of $1.0 billion, to be completed by mid-2017.

Our Viewpoint

By disposing unprofitable/non-core operations, HSBC has been successful in its strategy to enhance efficiency, as operating costs continue to decline. While weak European and Chinese economies, low loan demand and litigation expenses will continue to limit the bank's growth in the near term, it is poised to benefit from its extensive global network, strong capital position and a solid asset growth. Also, the company's additional share repurchase plan will help restore investors' confidence in the stock, to some extent.

HSBC Holdings PLC Price, Consensus and EPS Surprise

HSBC Holdings PLC Price, Consensus and EPS Surprise | HSBC Holdings PLC Quote

HSBC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other Foreign Banks

Deutsche Bank AG DB reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Higher provisions impacted the results. However, the reduction in non-interest expenses and high expenses were positives.

UBS Group AG UBS reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company's consistent focus on expense management.

Barclays PLC BCS is slated to announce its results on Feb 23, 2017.

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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.

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

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