“The banking bounce back has continued with HSBC Holdings plc (LON:HSBA) (NYSE:HSBC) doubling first half pre-tax profits as economies come out of their defensive hiding places, and the spectre of bad debt recedes.
HSBC's Profit Surges
Pre-tax profit for the period rose to $10.8bn, compared to $4.32bn for the same time last year.
Walter Schloss isn’t a name many investors will have heard today. Schloss was one of the great value investors who trained under Benjamin Graham and specialized in finding cheap stocks. His track record was outstanding. In Warren Buffett’s 1984 essay, the Super Investors of Graham-and-Doddsville, he noted that between 1956 and 1984, Schloss’s firm returned Read More
The dividend is back but it’s not the bread and butter of better loan margins behind the push up in profits. Revenues are down 4% as the ultra-low interest rate environment still bites and the huge investment trading upswing during the first half last year subsided.
Instead the worse-case scenario of an increase in bad loans hasn’t materialised, so the bank has been confident enough to release over $700 million that had been set aside as a buffer. It is in stark contrast to a year ago when it clocked up $6.9 billion in impairment charges.
Given the frightening twists the global economy has had to deal with due to the emergence of new variants, the worry is that there could still be monsters lurking under the bed, so the bank is keen to stress it views the recovery as still in the early stages. If inflation lingers, central banks may be minded to push up rates more quickly but that still looks like it is quite far down the road.
As well as expanding its overall wealth business, the bank has been shifting to Asia to try and sniff out higher returns, moving capital investment and staff from Europe and the US. Although recovery in the region has so far been good news for HSBC’s profits, it has faced reputational headwinds over accusations it was too close to Chinese authorities which have cracked down on pro-democracy protestors in Hong Kong. Worries are now rife that there could be a downturn in investment due to Beijing’s crackdown on tech and online educational firms in particular. So far the bank says it isn’t changing its forecasts of investment pouring in to seek out opportunities, but the days are still early, and there are some concerns it could upset its resilient recovery."
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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