A 28 per cent year-on-year increase in pre-tax profit for the third quarter was reported by the largest bank of Europe – HSBC, at $5.922 billion.
The revenue of the bank also increased by 6.32 per cent year-on-year for the third quarter, and was at $13.798 billion.
But according to analyst forecasts compiled by data firm Refinitiv, the bank just missed analysts’ expectations for the third quarter despite the increases in reported pre-tax profit and revenue.
“These are encouraging results that demonstrate the revenue potential of HSBC,” the bank’s group chief executive, John Flint, said in a statement alongside the earnings release.
There was an increase of 5 per cent in the shares of HSBC listed in Hong Kong following the results. There has been a drop of more than 20 per cent in the shares of the bank so far his year both at the London Stock Exchange and in Hong Kong. This was driven by increasing threats to global growth prospects because of trade war uncertainties.
The enhancement in the earnings for the third quarter for the lender was expected by analysts, but what they were most interested to see the guidance of the bank on the business in te next few months given the current and anticipated global economic conditions.
“We think there are risks going forward for HSBC,” Kevin Leung, executive director of investment strategy at Haitong International Securities, said before the earnings announcement.
“We’ve seen a flurry of downgrades, we’ve seen the share price coming down,” he said in a television channel.
Despite HSBC being headquartered in London, Asia accounts for most of its revenues.
Analysts noted that its key business in Hong Kong will be pressurised by the slowdown in the Chinese economy. The bank’s lending profitability is reaching a stagnant stage in Hong Kong. The analysts said that the bank’s trading business would be challenged by the recent sell-off in global markets.
The forecast for HSBC was downgraded by J.P. Morgan Chase.
“The risks as we see it are continued weakness, particularly in the capital markets as well the wealth management business given some of the macroeconomic trends that we see in the region,” James Sullivan, head of Asia ex-Japan equities research at J.P. Morgan Chase, said.
“HSBC has a significant trade finance business as well so a lot of the trade tensions we’ve talked about will also be risk factors,” he added.
Even while it is expected that there would be an improvement in HSBC earnings, these risks would most probably take away the limelight from the potential good performance. According to Refinitiv, for the third quarter, it is forecast that the bank would post a 29.8 per cent increase in the profit before tax at $5.99 billion.
According to Refinitiv data, analysts also expect a 7.7 per cent year-over-year growth in revenue to $13.98 billion.
“I think a lot of investors will be watching the share price performance closely today, maybe today will represent another drop in market value and the share price of the company. So, I think investors need to be cautious about it,” Ronald Wan, non-executive chairman at Partners Financial Holdings, said.
(Adapted form Bloomberg.com)