HSBC Holdings Plc (HSBC) - Get Report shares traded near the bottom of the London market Tuesday after Europe's biggest bank posted a small-than-expected 2018 profit and cautioned on a slowdown in key markets in Britain and China.
HSBC said its full-year pre-tax profit rose 15.7% from the same period last year to $19.9 billion, but fell shy of the Refinitiv consensus forecast of $22 billion. Following last year's "pivot' to Asia under CEO John Flint, pre-tax profits in that region hit $17.8 billion, but costs have continued to rise at a faster pace than revenues under a $15 billion investment plan that has eaten into the group's bottom line. Adjusted revenues rose 4% to $53.9 billion, HSBC said, while operating expenses rose 6% to $33 billion.
"These are good results that demonstrate progress against the plan that I outlined in June 2018," Flint said. "Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017."
"This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020," he added.
HSBC shares were marked 4.12% lower by mid-day of trading in London to change hands at 636.3 pence each, a move that takes the stock's three month decline to around 2% and values the London-based bank at around £128 billion ($165.3 billion).
In October of last year, the bank said it will pay more than $750 million to the U.S. Department of Justice to settle a long-running dispute with authorities that it mis-sold mortgage bonds in the run up to the global financial crisis.
HSBC said the definitive settlement, which includes a civil penalty of $765 million, will apply to its HSBC North America division but will not include an admission of liability or wrongdoing.
The settlement puts a major U.S. litigation risk behind it as the bank moves to accelerate earnings as part of its "Asia pivot" strategy under Flint, although investors are still questioning the costs associated with the bank's planned expansion. HSBC also said it will pay a 51 cents per share dividend for 2018 as it pursues its current strategy of returning to growth and creating value.
"Despite more challenging market conditions at the end of the year and a weaker global economic outlook, we are committed to the targets we announced in June," the bank said. "We remain alert to the downside risks of the current economic environment, especially those relating to the UK economy, global trade tensions and the future path of interest rates."
"We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business," HSBC added.
However, both the bank's cost base, which has plagued other financial institutions attempting to expand in China and Southeast Asia, as well as the escalating trade tensions between the U.S. and China, have some investors questioning its ability to enhance shareholder returns in the first half of this year.
"The system of global trade remains subject to political pressure, and differences between China and the US will likely continue to inform sentiment in 2019," HSBC said. "China remains subject to domestic and external pressures, but we expect it to maintain strong growth. We also expect further financial liberalisation to form part of China's response to changing external conditions. This will benefit domestic and international customers and investors."