What led to the decline in profits during a record year for the bank?
While HSBC Holdings reported a record annual profit for 2023, the London-based banking giant suffered an 80% decrease in its fourth quarter profit, attributing the decline to unexpected charges related to its holdings in a Chinese bank and the sale of its French retail operations.
In its annual results published on Wednesday, HSBC revealed that its pretax profit for the last quarter of 2023 plummeted to $1 billion (around £792 million) from $5.05 billion (£4 billion) in the comparable period a year earlier, primarily due to a $3 billion (£2.37 billion) charge associated with its stake in China’s Bank of Communications (BoCom) and a $2 billion (£1.58 billion) charge related to the sale of its French operations.
“That has no impact on our capital position of any significance, it does not prohibit distribution,” Noel Quinn (pictured), chief executive at HSBC, was quoted as saying in a Bloomberg report. “It is a technical accounting issue. I also want to reiterate, we have strong confidence in the China economy.
“We believe our partnership with BoCom has been a good partnership for 20 years, and that status has not changed at all.”
Generating the majority of its profit from Asia, HSBC acquired a 19.9% stake in the Shanghai-based bank for $1.75 billion (£1.39 billion) in 2004.
Despite the multibillion-dollar impairment, the bank’s pre-tax profit for 2023 soared to $30.3 billion (£24 billion), marking a 78% increase from the previous year. Profit after tax increased by $8.3 billion (£6.57 billion) to $24.6 billion (£19.48 billion).
Net interest margin improved by 24 basis points to 1.66% due to rising interest rates, while expected credit losses and other credit impairment charges slightly decreased to $3.4 billion (£2.7 billion). Customer lending balances increased by $15 billion (£11.87 billion), although on a constant currency basis, there was a $3 billion (£2.37 billion) decrease, affected by various factors including acquisitions and divestments.
“Our record profit performance in 2023 enabled us to reward our shareholders with our highest full-year dividend since 2008, three share buy-backs last year totalling $7 billion (£5.54 billion), and a further share buy-back of up to $2 billion (£1.58 billion),” Quinn said. “This reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.
“We have a strong platform for growth with the opportunities that exist within our two home markets and across our international wholesale, market-leading transaction banking, and wealth management businesses. We are focused on capturing these growth opportunities, improving our earnings sustainability and targeting mid-teens returns in 2024.”
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