HSBC 2023 results: $3 billion writedown in China hits annual profit

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CNN
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HSBC suffered a sharp drop in quarterly profit on Wednesday after a $3 billion loss in its stake in Bank of China Communications (BoCom) and separate charges related to its exposure to the country’s troubled real estate industry. .

The Asia-focused financial company said in a statement that it reported an 80% decline in pre-tax profit in the last three months of 2023 compared to the same period in 2022.

HSBC attributed the decline to two charges brought against it. Of this, $3 billion was related to BoCom, one of China’s largest banks, and $2 billion came from the sale of its French retail banking business.

HSBC said the $3 billion impairment was calculated following a December valuation that included estimates of BoCom’s future cash flows.

Separately, HSBC recorded a $3.4 billion provision to cover expected credit losses and other costs related to its exposure to mainland China’s commercial real estate sector.

“Confirming much of the confusion, results appear to have been slightly worse than expected, with higher operating costs more than offsetting slightly improved impairments,” Hargreaves Lansdown equity analyst Matt Blitzman said in a research note. ” he said.

“Mainland China remains a question mark. Bad debt costs were better than expected, but China’s commercial real estate sector remains weak,” he said.

However, the UK-based bank, Europe’s largest by market capitalization, maintained a positive view on China.

“While China’s recovery after reopening was tougher than expected, the economy grew in line with the annual target of around 5% for 2023.Recently announced support for the real estate sector and local government debt We expect this situation to persist into 2024 as a result of policy measures that gradually trickle down to the wider economy,” Chairman Mark Tucker said in a statement.

China’s economy has been hampered by a real estate crisis since 2021, as a government crackdown on borrowing by developers caused a cash squeeze in the real estate industry.

Since then, the real estate market has entered a prolonged slump, characterized by a continued decline in real estate investment and real estate sales. Dozens of major developers have defaulted on their debts, and Evergrande, once the country’s second-largest home builder, was ordered into liquidation last month.

The charges reported by HSBC cast a shadow on its record annual profit of $30.3 billion, up 78% from 2022. A group of analysts surveyed by the bank itself had expected full-year pre-tax profits of $34.1 billion.

HSBC’s Hong Kong-listed shares fell after the results announcement, closing down nearly 4%. The company’s London-listed shares fell 7% at the market open.

HSBC announced that it now holds a 19% stake in Bocom, which it acquired in 2004.

“BoCom remains a strong partner in China and we remain focused on maximizing the mutual value of our partnership. There is no change in my view.”

HSBC is not the only European financial institution affected by China’s real estate crisis. In October, rival Standard Chartered reported a $186 million credit impairment charge related to domestic commercial real estate.

—Hanna Ziady contributed to this article.