Global Interest Rates Boost Hsbc's Profit

The world's largest bank, HSBC Holdings PLC (HSBC, up 5.06%; green triangle), announced a strong gain in fourth-quarter earnings as it benefited from rising interest rates and continued to narrow its focus on Asia and the Middle East.

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According to HSBC, the British lender's earnings in the last three months of 2022 more than doubled from the same period the previous year to $4.6 billion. That surpassed analyst predictions. HSBC's annual earnings increased by about 18% to reach its greatest level in almost ten years.

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The bank did, however, set aside additional funds to cover any potential losses associated with the Chinese real estate market and provided an outlook for future interest income that some analysts deemed to be conservative, indicating that the advantages of higher interest rates may be beginning to wane.

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HSBC's shares with a Hong Kong listing slid more than 2% on Tuesday, but they were still up more than 18% for the year.

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Consumers and businesses have been squeezed at a time of high inflation and rising interest rates, but lenders like HSBC, Europe's largest bank by market value, have benefited. Banks are often able to increase the rates they charge consumers and businesses by an amount greater than the increase in their own funding costs, so increasing their profit margins, when global central banks raise their policy rates.

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HSBC reported that its net interest income increased by 26% to $32.6 billion last year and that it anticipates a similar increase to $36 billion in 2023.

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The London-based HSBC is in the midst of a significant restructure in which it has cut back on investments in certain regions of Europe and North America while increasing its spending in Asia and the Middle East.

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It committed 47% of its money to Asia last year, up from 42% in 2021, and stated that it intended to raise that percentage to 50% within a few years. In addition to being involved in Hong Kong, HSBC is a significant retail and commercial lender in mainland China.

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Noel Quinn, the chief executive of HSBC, stated that the firm may further withdraw from specific markets.

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According to Mr. Quinn, "We are still looking at sections of our portfolio" to consolidate or shrink in minor nations and markets. "If we can accomplish it, we will. This enables management to pay more attention to the significant growth prospects and less to the non-strategic areas.

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From $12.6 billion in 2021 to $14.8 billion in 2018, HSBC's yearly profit increased. According to Trade Algo data, that was the greatest profit since 2013, when it reached $15.6 billion.

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For anticipated credit losses in 2022, HSBC set aside $3.6 billion, including $1.4 billion for the last quarter. The bank's exposure to China's commercial real estate market, which collapsed last year, had a role in this. Yet, this year's economic expansion in China is anticipated to benefit HSBC as a result of Beijing abandoning its "zero-Covid" policy and taking action against the real estate slump.

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The bank stated, "We have noticed recent encouraging policy improvements in the commercial real estate sector in mainland China and continue to monitor events closely."

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Since early 2022, HSBC has been under pressure from its largest shareholder, Ping An Insurance, despite the bank's restructuring. Its share price has lagged behind that of several of its competitors for years. In order to reduce expenses, increase revenue, and narrow the bank's focus on Asia, Ping An has called for even more aggressive measures.

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The lender, which will pay a second interim dividend for 2022, also announced that it will resume paying quarterly dividends at the beginning of 2023. When the bank temporarily stopped paying dividends in 2020, some of the bank's minor shareholders in Hong Kong objected.

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After the anticipated $10.1 billion sale of HSBC's Canadian division to Royal Bank of Canada is completed, Mr. Quinn stated that the bank will also take into consideration a special dividend.