HSBC plc (HSBC) shares were marked lower in London trading as investors focused on the risings costs associated with the bank's planned expansion in Asia even as Europe's biggest bank reported stronger-than-expected first half profits.
HSBC said profits for the six months ending in June rose 4.6% from last year to $10.7 billion, topping the consensus forecast, while adjusted group revenues grew 2% to $13.7 billion, a figure that fell modestly shy of analysts' estimates. Overall group expenses, however, rose 6% to $17.5 billion, while most of the group's U.S. profits were wiped out by a $765 million charge to settle a Department of Justice allegation that the bank had mis-sold mortgage backed securities in the run-up to the global financial crisis a decade ago. HSBC also said it will hold its dividend in place at 10 cents a share as it pursue's its current strategy of returning to growth and creating value.
"We will seek to achieve these aims by increasing returns from the Group's areas of strength, particularly in Asia and across our network; turning around low-return businesses of high strategic importance, particularly in the United States; investing in building a bank for the future with the customer at its centre; and making it easier for our colleagues to do their jobs," CEO John Flint said in a letter to investors.
"Our investment in the first half included hiring more front-line staff in our strongest businesses and expanding our digital capabilities in core markets, both of which will improve the service we offer customers," he added. "Our first-half reported and adjusted operating expenses rose as a consequence, which contributed to a drop in adjusted profit before tax."
HSBC shares were marked 0.76% lower by mid-morning in London and changing hands at 710.3 pence each, a move that extends the stock's year-to-date decline to around 7.38%.
Flint, who took over from the retiring Stuart Gulliver earlier this year, has said he wants to "pivot" Europe's biggest bank towards growth opportunities in Asia, where HSBC made more than 88% of its profits -- $9.4 billion -- in the first half of the year, a figure that's 23% higher than over the same period in 2017.
However, both the bank's rising 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 second half of the year.
"The group continues to prioritise investment in technology and business in China, the cornerstones of its strategy plan, as it attempts to make banking faster and easier through automation and online applications," said Share Center analyst Graham Spooner. "Nonetheless, the group remains 'cautiously optimistic' as it is yet to be impacted by trade tensions. However, investors should remain cautious of the potential of a hit to its Asia wealth unit and rising costs; nonetheless we maintain our 'buy' recommendation for the bank for investors seeking an income portfolio with a medium level of risk."