HSBC shares tank on China impairment scare

HSBC on Wednesday posted soaring annual profits, largely thanks to ballooning interest rates, but its shares tanked after the banking giant revealed a massive impairment linked to property-sector woes in China.

Net profit surged 56 per cent last year to $22.4 billion, the London-headquartered group said in a statement. Pre-tax gains hit a record $30.3 billion following a 80-per cent gain.

Despite also announcing further share buybacks, shares in HSBC slumped in London and Hong Kong, shedding 7.8 and 4.0 per cent respectively.

In the fourth quarter alone, HSBC profits took a hammering following a $3-billion impairment linked to its 19-per cent stake in China's Bank of Communications, which was hit by property loan writeoffs.

HSBC stressed that the Shanghai-based lender "remains a strong partner in China".

It added: "We remain focused on maximising the mutual value of our partnership."

Investors wary

"Investors took a dim view of the impairment charge associated with the bank's Chinese investment, dampening sentiment around the Asia-focused bank," noted Joshua Mahony, chief market analyst at trading group Scope Markets.

"With continued concerns around the Chinese real estate sector, and global interest rates expected to fall, investors are taking a somewhat cautious approach after both earnings and revenues fell short of expectations."

HSBC reported expected credit losses of $3.4 billion in 2023, "notably related to mainland China commercial real estate exposures".

China's property market woes have continued to weigh down the country's economic growth, with the most debt-ridden developer Evergrande recently handed a liquidation order in a Hong Kong court.

Bloomberg Intelligence analyst Tomasz Noetzel said HSBC's $3-billion impairment charge related to Bank of Communications "appears to rightly capture the deteriorating outlook for China's economy and shouldn't be a surprise".

The bank generates most of its revenue in Asia and has spent several years pivoting to the region, vowing to develop its wealth business and target fast-growing markets.

HSBC noted the effects of China's slower-than-expected economic recovery after the Covid-19 pandemic as well as heightened geopolitical tensions.

Nevertheless, HSBC is "confident in the resilience of the Chinese economy, and the growth opportunities in mainland China over the medium to long term", said the bank's chief executive Noel Quinn.

HSBC said group revenue jumped 30 percent to more than $66 billion last year. It announced a $0.31 interim dividend, bringing its payout for the year to $0.61 a share.

"Our record profit performance in 2023 enabled us to reward our shareholders with our highest full-year dividend since 2008," Quinn said. (AFP)