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Stuart Gulliver’s final set of results at HSBC Holdings were not quite the swansong he had hoped for as he hands the reins over to his long-term lieutenant, John Flint.
Europe’s largest bank missed estimates for fourth-quarter revenue and profit as it became the latest firm to take a hit on two high-profile corporate failures and post a sharp decline in trading income at its investment bank, the lender said Tuesday.
“The results were decent enough, but nothing earth-shattering,” said Hugh Young, head of Asia at Standard Life Aberdeen, one of the bank’s top shareholders. HSBC is “firmly on the course set by Stuart and Douglas Flint with more to go for; it would be great if they get to a 10 per cent return on equity from the current 5.9 per cent,” referring to the industry’s measure of profitability.
HSBC dropped 2.1 per cent in Hong Kong as of 3:35 pm local time Tuesday, after earlier declining as much as 3.2 per cent. The bank’s shares fell 2.8 per cent to 739.60 pence at 8:04 am in London.
Flint, who takes over Wednesday, inherits an Asia-focused bank back in expansion mode after years of restructuring during which it lost $20 billion of revenue. After shrinking and imposing central control over the lender’s far-flung global network, while enduring several misconduct issues, investors are now looking for a return to growth.
During his last year, Gulliver managed to arrest a six-year slide in income and positioned the bank to return more cash to investors in the second quarter.
Tuesday was a rare miss for investors who’d got used to Gulliver beating profit estimates, at least in the latter part of his tenure. The outgoing CEO delivered higher-than-forecast adjusted net income in six of the previous seven quarters, according to data compiled by Bloomberg.
A major culprit were chunky loan impairments, which were about $188 million higher in the quarter than a year earlier, “largely driven by two individual corporate exposures in Europe,” HSBC said in the statement. The two companies responsible were Steinhoff International Holdings NV — the South African retailer engulfed in an accounting scandal, which owns businesses in Britain — and Carillion Plc, the UK construction company that imploded earlier early this year, a person familiar with the figures said, who asked not to be identified speaking about confidential data.
The losses helped drive down adjusted pretax profit to $3.6 billion in the fourth quarter, undershooting the lowest estimate among five analysts surveyed by Bloomberg News. While revenue rose 10 percent to $12.4 billion, it failed to match the $12.7 billion analysts had expected. HSBC’s strategy to redeploy $100 billion or more of assets to Asia is also paying off. Fourth quarter profit rose 23 per cent in the region, compared with a 29 per cent decline in Europe.