Bloomberg News - HSBC Says Global Tensions Mean Uncertainty After Profit Misses

By Harry Wilson and Alfred Liu

HSBC Holdings Plc warned that geopolitical uncertainty in China, the U.S. and the U.K. has made the prognosis for the year far less predictable after fourth-quarter earnings fell short of analysts’ estimates.

Chief Executive Officer John Flint has also vowed to keep a keener eye on costs after a disappointing quarter capped his first year in charge of Europe’s largest bank. Like its rivals, HSBC, which gets most of its business in Asia, was hit by the meltdown in financial markets, which pushed investment bank revenues lower. Its shares fell 2.9 percent in early London trading.

“There are more risks to global economic growth than this time last year, and we remain alive and responsive to all possibilities,” Chairman Mark Tucker said. “The system of global trade remains subject to political pressure, and differences between China and the U.S. will likely continue to inform sentiment in 2019.”

Pressure is growing on HSBC’s management to improve returns by repurchasing stock, and the bank said it’s committed to its previous policy of returning capital to shareholders. However, HSBC stopped short of announcing a new buyback program, which analysts at Jefferies called a "notable disappointment."

“Prospects for enhanced capital repatriation against slower growth prospects have formed the key part of our constructive stance,” the Jefferies analysts, including Joseph Dickerson, said in a note. “This aspect of our thesis is clearly not playing out.”

“We are clearly going to moderate the pace of some of our investment,” Flint also said in an interview, though he didn’t provide details, saying the bank is “still having those conversations.” HSBC won’t have to resort to any major job cuts to keep a lid on expenses, he said.

Adjusted pretax profit, which excludes one-time items, fell 1 percent to $3.39 billion in the three months ended Dec. 31, missing the $4.4 billion consensus average derived from estimates compiled by the bank. Global markets, which houses HSBC’s investment bank, said adjusted revenue was $1.1 billion, an approximate 16 percent decline from the final three months of 2017.

Flint vowed to slow spending as he seeks to deliver on a key promise to shareholders: That revenue gains outpace cost increases, a trend HSBC refers to as positive jaws. He failed to achieve that in his first year at the helm, in part because of the fourth-quarter equities meltdown that also inflicted pain on the bank’s biggest rivals, including UBS Group AG. HSBC said it’s committed to achieving positive jaws this year.

In a statement issued with the earnings, HSBC said it was committed to the targets it announced in June. Among those targets for 2020:

• Accelerate growth from Asia by achieving high single-digit revenue increases each year
• Turn around its U.S. business with a more than 6 percent return on average tangible equity
• Complete set up of U.K. ring-fenced bank; grow mortgage market share and commercial customer base.
• HSBC switched CEOs last year, elevating Flint to replace Stuart Gulliver, bringing to an end a seven-year term marked by asset sales, job cuts and a pivot toward Asia.