HSBC Stock Plunges As Lower Profit, Dividend Disappoint Investors

HSBC Stock Plunges As Lower Profit, Dividend Disappoint Investors
By HSBC Holdings plc ( [Public domain], via Wikimedia Commons

The share HSBC is trading downwards after reporting lower profit before tax (PBT) and dividend for the full year 2014.  The stock price of HSBC declined more than 4% to $44.64 per share at the time of this writing, around 11:54 A.M. in New York.

HSBC financial performance

During the fiscal 2014, HSBC reported that its PBT declined 17% to $18.7 billion from $22.57 billion in the previous year. The company said its adjusted PBT did not change at $22.8 billion excluding the year-on-year effects of foreign currency.

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The company explained that the decline was primarily caused by lower business, reclassification gains, and the negative effects of both revenue and costs of significant items including fines, settlements and UK customer redress and other related provisions.

HSBC delivered $0.69 in earnings per share, down from $0.50 per share last year. Its revenue was $62 billion, slightly lower than the $61.85 billion recorded in 2013. The company said its revenue was stable due to the growth of its commercial banking particularly in its home markets, Hong Kong and the United Kingdom last year.

HSBC said its dividend per share was $0.50 per share compared with $0.49 per share in 2013. Its return on equity was 7.3% compared with 9.2% in the previous year.  Its operating expenses rose 6.1% to $37.8 billion in 2014 due to increased regulatory and compliance costs, inflationary pressures and investment in strategic initiatives.

In a statement, Stuart Gulliver, CEO of HSBC said 2014 was challenging for the company as they continue to work hard to improve its business performance while managing the impact higher operating cost based.

“Profits disappointed, although a tough fourth quarter masked some of the progress made over the preceding three quarters. Many of the challenging aspects of the fourth quarter results were common to the industry as a whole,” said Gulliver.

Analysts’ comments

Leigh Goodwin, an Analyst at RBC Capital Markets commented that HSBC’s full year PBT beat the consensus estimate by 11% on an RBC-adjusted basis, however he emphasized its dividend disappoint and new KPIs outweigh results.

Goodwin said RBC Capital Markets and the consensus expectation is for HSBC to deliver $0.51 in dividend per share. In terms of KPIs, the analysts said the new ROE target is 10% higher than the previous target of 12% to 15%, but it is based on a higher level of CET1 than the previous 12% to 13%, which removes 1.4 to 2.5pp.

“Higher regulatory cists take off 0.6pp and higher UK bank levy 0.3pp FY14 RoE was just 7.3% vs RBCe 8.5% and consensus expectation of 8.4%,” wrote Goodwin. He also cited HSBC’s impairments as an area of concern.

On the other hand, JP Morgan analyst Josh KLaczek and his team commented that HSBC’s full year 2014 results were lower-than-expected. They noted that the “bigger surprise” in the fourth quarter were provisions and capital. They emphasized that the company’s credit increased 27 bps to 50bps in the quarter with  a large jump in impairments across Europe (+161% QoQ), Asia (+52%) and Latin America (+32%).

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