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HSBC Reports Declining Profits Amid Challenging Market

HSBC Holdings Plc experiences a dip in profit and revenue. The bank anticipates lower customer lending demand but remains optimistic about long-term growth in fee income and net interest income.

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AI Rating:   5
Earnings Performance: HSBC reported a decrease in profit before tax, falling to $9.48 billion from $12.65 billion. This drop is attributed to the absence of significant gains from disposals that had inflated last year's figures. Similarly, profit after tax also decreased to $7.57 billion from $10.84 billion, indicating a notable reduction in profitability.

Revenue Analysis: The bank's revenue fell by 15%, down to $17.65 billion compared to $20.75 billion a year prior. This decline largely reflects the impacts of business disposals in Canada and Argentina. However, there was a silver lining as constant currency revenue, excluding notable items, showed a 7% increase, demonstrating underlying operational resilience.

Net Interest Income: The net interest income (NII) of $8.3 billion saw a slight decline of $0.4 billion. The net interest margin also fell, decreasing by 4 basis points to 1.59%. This could suggest margin pressure amidst competitive lending conditions.

Future Outlook: HSBC has signaled an intention to balance returning capital to shareholders with strategic growth initiatives, announcing share buy-backs up to $3 billion. While the bank anticipates muted demand for lending in 2025 due to heightened market uncertainty, it expects mid-single digit percentage growth in customer lending over the medium to long term and double-digit growth in fee income in Wealth, which indicates confidence in revenue diversification.

Return on Equity: The bank maintains a target of mid-teens return on average tangible equity from 2025 to 2027, excluding notable items which suggests an optimistic profit generation framework despite current market challenges.
Stocks:  HSBA