HSBC today posted it’s much anticipated 3rd Quarter results. The headline figure of an 83% drop in pre-tax profits did not dampen sentiment for the share, as analysts peered trough the veil and took note of the underlying 7% increase in profits once one off items were stripped from the results.
The third-quarter adjusted pretax profit rose to $5.59 billion, surpassing the $5.29 billion average expected by analysts.
Chief Executive Officer Stuart Gulliver stated “This is a reasonable quarter; we’ve got that momentum on costs coming through. People have talked previously about whether we can take our costs down because revenues aren’t growing. You’ll notice we have positive jaws in the quarter and for the full nine months.”
Adjusted profit before tax for the first 9 months of 2016 is down $1bn compared to 2015 levels to $16.7bn as a result of lower revenue. Markets so far don’t seem too deterred by this as the bank is reducing in size, down to 77 countries from 99 in 2011. Revenue is naturally going to drop as a consequence – the key is getting profitability up. Arguable Gulliver is doing a good job in guiding this huge bank through turbulent waters.
The bank also confirmed a Change in PRA regulatory treatment of BoCom, resulting in a $121bn reduction in RWAs and a $5.6bn threshold deduction from capital driving a 104bps increase to CET1. The news will be welcomed by income seeking investors as the reduced capatal requirement swill help keep the dividend safe for the coming year.
The Share buy back has been reported as 59% complete, due to be finalised in late 2016/early 2017. No mention was made in the results of assets to be realised on the other side of the Atlantic, though that will be unlikely to be mentioned until early 2017.
My view on HSBC remains unchanged, and my target price remains as per my previous research note:
I hold a position in HSBC.
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