HSBC Holdings plc (LON:HSBA) has today reported a worse-than-expected decline in full year profits, blaming one-off charges including the disposal of its Brazil operations.
The bank posted pre-tax profit of $7.1bn in the year to 31 December 2016 on a reported basis, down from $18.9bn the previous year. Analysts had expected profits of $14.4bn, according to Thomson Reuters data.
The drop in profits reflected a $3.2bn impairment of goodwill in the company’s global private banking business in Europe and the impact of the sale of its operations in Brazil. HSBC said the impairment charges in the private banking business related mainly to its acquisition of Safra Republic Holdings in 1999. The restructuring of private banking is largely complete.
Reported revenue fell to $47.9bn from $59.8bn, primarily due to unfavourable foreign exchange movements and significant items, including operating results for the Brazil business and the loss recognised on its disposal.
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Following the sale of the Brazil business, the group completed a $2.5bn share buy-back and cut its risk weighted assets to $857,181 in 2016 from $1.2mln a year earlier.
“We are investing over $2bn in digital transformation initiatives to improve our offer to customers, and are instigating a further $1bn buy-back programme reflecting the strength and flexibility of our balance sheet,” chief executive Stuart Gulliver said.
Through its restructuring programme, HSBC expects to deliver annualised cost savings of about $6bn by the end of 2017 and will use this to invest in the business. It expects to exit 2017 with a case base of about $29.5bn, in line with consensus estimates.
On the lender’s plans to replace its chairman Douglas Flint, he said the process remains on track and an announcement will be made in due course.
Looking ahead, the group said incremental growth is expected to be driven by emerging economies in which HSBC is well represented.
However, the bank warned that risks to this scenario “remain high” given the political uncertainty surrounding European elections, possible protectionist measures from the new US administration, the impact of a stronger dollar against currencies in emerging economies and the unknown outcome of Brexit negotiations.
“We enter 2017 with the restructuring of the group essentially completed, and with a strong capital position and a conservative balance sheet,” Flint said.
The common tier 1 ratio rose to 13.6% from 11.9%, missing market expectations of 13.8%.
The dividend was left at 51c per share, taking the total for the year to $10.1bn.
Shore Capital said the results were "disappointing” with a number of key metrics falling short of its estimates and consensus forecasts.
The broker added the announcement of a further $1bn share buy-back was less than its expectations for an ongoing $2.5bn per year.
On HSBC’s cost savings target, ShoreCap said $6.0bn may come as a disappointment as media reports have previously suggested a potential increase to $8.0bn.
ShoreCap issued a ‘sell’ rating and target price of 712p. The broker expects fiscal year 2017 adjusted pre-tax profit of $20.8bn, adjusted diluted earnings per share of 51c and tangible net asset value of $7.39.
Shares in HSBC fell 6.28% to 667.60p in morning trade.
-- Adds broker note, updates share price --