With Core Income Pressure, HSBC Keeps Provisions at Historical Lows

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Equity Bottom-Up

HSBC reported mixed fourth-quarter results, in our view, but we plan to largely maintain our forecasts while our $40/GBX 610/HKD $62 fair value estimates might modestly change due to recent currency moves. However, HSBC remains one of the most exposed large global banks to changes in interest rates, given its lending base, and it estimates that annual net interest income could increase $6.8 billion or 24%, assuming a 25-basis-point shift in yield curves at the beginning of each quarter. The exposure is substantial given 61% of its overall lending portfolio is wholesale, largely variable, and 39% of its portfolio has a term of less than one year. This level of exposure is mainly driven by its U.S. operations as well as its Hong Kong operations that are linked to the U.S. yield curve, and the nature of trade finance, which tends to be very short term.Areas of disappointment in the quarter relate to the ongoing write-offs, concerning trade finance trends (global trade finance grew less than global GDP growth last year, a first in the last 15 years) though Asian trade has picked up recently with the recovery in commodities, and stagnant growth.Analyst: Stephen Ellis

HSBC reported mixed fourth-quarter results, in our view, but we plan to largely maintain our forecasts while our $40/GBX 610/HKD $62 fair value estimates might modestly change due to recent currency moves. However, HSBC remains one of the most exposed large global banks to changes in interest rates, given its lending base, and it estimates that annual net interest income could increase $6.8 billion or 24%, assuming a 25-basis-point shift in yield curves at the beginning of each quarter. The exposure is substantial given 61% of its overall lending portfolio is wholesale, largely variable, and 39% of its portfolio has a term of less than one year. This level of exposure is mainly driven by its U.S. operations as well as its Hong Kong operations that are linked to the U.S. yield curve, and the nature of trade finance, which tends to be very short term.Areas of disappointment in the quarter relate to the ongoing write-offs, concerning trade finance trends (global trade finance grew less than global GDP growth last year, a first in the last 15 years) though Asian trade has picked up recently with the recovery in commodities, and stagnant growth.Analyst: Stephen Ellis

HSBC Reports Mixed Results; Continued Cost Reductions Remain Surest Near-Term Lever

HSBC Holdings

HSBC Reports Mixed Results; Continued Cost Reductions Remain Surest Near-Term Lever