The worst may be over for China’s shaky commercial real estate market. However, that didn’t stop HSBC’s (HSBA.L) shares from tumbling as the bank’s third-quarter profits dipped below forecasts due to the country’s weak property sector and increased cost forecasts. The world’s largest lender also announced a new $3 billion share buyback, but investors were disappointed by the news and its latest China impairment charge.
HSBC, which has a reputation as one of the leading financial bridges between the West and China, is several years into a strategy to pivot toward the faster-growing markets in Asia, where it makes most of its money. Its disposals of businesses in France and Canada have been matched by acquisitions of insurance and wealth management assets in a region with growing ranks of the rich.
However, the latest results have prompted renewed concerns about its Chinese business. Its lousy debt charges rose by $1.1 billion in the quarter to hit $4 billion, taking a big chunk of earnings. The bank has already taken a $13 billion hit from the Chinese banking industry this year and warned that additional write-downs would likely occur.
The company’s chief executive, Noel Quinn, said the worst of the problem was behind it, and a commercial real estate sector recovery was on the way. “At the end of the day, we are seeing the world re-globalize, supply chains shift, and intraregional trade flows increase,” he told reporters on a conference call. “We have a strong position in the market that we are very well positioned to take advantage of.
Investors also shrugged at a $2 billion write-up in the value of its stake in a Chinese associate, BoCom, and a fresh $3 billion charge on China commercial loans. “Mainland China remains a question mark,” said Hargreaves Lansdown analyst Matt Britzman, noting the impact of lousy loan write-downs and a weak property market.
HSBC also warned of rising costs, including the impact of the UK’s decision to leave the European Union. Its total expenses were up 5% in the quarter, and it warned of further increases in 2024. That could weigh on its return on average tangible equity (ROTE) target of the mid-teens, which management has maintained.
HSBC shares fell 7% in early London trade against a broadly flat FTSE index, headed for their most significant single-day drop since the COVID-19 pandemic erupted in March 2020. Other heavyweights in the index, BAE Systems, and Rio Tinto saw their shares fall around 2% as they reported a lower-than-expected quarterly profit. Shares in online fashion retailer Asos were up 3.1% following reports exploring a sale of Topshop, the retail brand it bought from Sir Philip Green’s collapsed empire less than three years ago. Rightmove, the UK’s leading property portal, added 0.5% after reporting stronger-than-expected full-year revenues and profit. The company is expected to expand its presence in the country by buying rival Foxtons.
