HSBC Shares Dive After $3 Billion Writedown of China Bank Stake
HSBC, the U.K.-based banking giant, experienced a significant decline in shares following a $3 billion writedown of its stake in China’s Bank of Communications. As a result, the company’s quarterly profits plummeted by 80%. HSBC, which generates most of its earnings in Asia, saw its shares fall by 7% on Wednesday as investors reacted to the news.
The $3 billion impairment on the China bank stake resulted in fourth-quarter profits for 2023 dropping to $1 billion, compared to $5 billion for the same period in 2022. Despite this, HSBC reported a full-year pre-tax profit of $30 billion, a notable 78% increase from the previous year. However, this figure fell short of analysts’ expectations of $34 billion.
HSBC CEO Noel Quinn emphasized the bank’s commitment to investing in China, stating that they remained confident in the country’s economy. The company also announced that it would allocate an additional $200 million to cover anticipated credit losses from commercial property investments in mainland China, bringing the total for 2023 to $1 billion.
Danni Hewson, head of financial analysis, explained that the write-downs announced by HSBC were accounting decisions and would not impact the bank’s capital ratios or ability to distribute cash to shareholders. She also noted that HSBC announced a share buyback of $2 billion. Alistair Ryan, an analyst, expressed optimism about HSBC’s investment strategy in Asia and the U.K., highlighting the bank’s unique growth profile compared to its U.K.-focused counterparts.
The decline in HSBC shares had a ripple effect on the London stock market, with the FTSE 100 experiencing a 0.8% fall. Other poorly received results from companies such as Glencore and BAE Systems also impacted the blue-chip barometer. However, European markets showed more positive trends, with Frankfurt’s DAX up 0.4% and the CAC 40 in Paris adding 0.2%.
Overall, HSBC’s exposure to China poses risks, particularly amid the country’s slowing economic growth and challenges in the property sector. Nevertheless, the bank maintains its confidence in the Chinese economy and continues to pursue investment opportunities for growth.
Analyst comment
Negative news. HSBC shares dive and quarterly profits plummet by 80% due to $3 billion writedown of China Bank stake. Despite this, full-year pre-tax profit increases by 78%. Market outlook uncertain due to risks in China’s economic growth and property sector challenges.
