HSBC won't transform its fortunes overnight, but the improving economic outlook has provided a welcome boost to its aspirations

In particular, the release of $400 million of impairments is sign of optimism, especially in the UK where the situation has markedly improved from the perspective of poor performing loans.

Article updated: 27 April 2021 10:00am Author: Richard Hunter

At the same time, the investment banking unit has continued to benefit from market volatility and fund raisings, the Wealth business saw a 3% growth of balances taking the figure to £1.6 trillion in the quarter, while overall the bank has reported that each of its regions were profitable for the quarter, already a far cry from the tribulations of 2020.

The return on equity figure has also shown marked improvement, while the capital cushion is unchanged on the previous quarter but extremely comfortable at 15.9%. With the Liquidity Coverage Ratio also edging higher to 143%, the famously robust finances of the group are intact, which could augur well for shareholder returns later in the year.

The swing to profit from a previous loss in most regions, notably Europe and North America, begin to lay the foundations of a recovery, and the 79% improvement in pre-tax profit to $5.8 billion, albeit against a softer comparative, is promising.

Much remains to be done however, such as a transformation programme which has yet to land. In the meantime, it has contributed to a worsening cost/income ratio, now standing at 65.7% versus a previous 57.4%, with an unhelpful rise of 9% in operating expenses overall. Group revenues fell by 5.1% as historically low interest rates continue to crimp income, with Net Interest Margin at 1.21% from a previous 1.54%.

Further risks are evident, with varying geopolitical tensions in its core Asian region, which accounts for 65% of profits on these numbers, a particular concern. The likelihood that different parts of the world will emerge from the pandemic at different speeds and over different times is another potential headwind, while the fact that there are still a number of payment holidays for the bank to consider add to a difficult credit mix.

Indeed, it seems that HSBC remains the laggard compared to its peers both in terms of share price performance and the general view for the moment. The shares may have added 5% over the last year, during which time the FTSE100 has jumped 19%, but this is largely propelled by a spike since the announcement of a vaccine in November. Meanwhile, the current market consensus of the shares as a sell implies much better value elsewhere within the sector.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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