Europe's largest bank tops expectations with rebounding profit

  • HSBC said on Monday that reported profit before tax went up by 4.58 percent year-over-year to $10.71 billion in the six months of 2018.
  • That’s above analyst estimates compiled by Reuters and a rebound from a surprise fall in pre-tax profit in the first quarter.

HSBC, Europe’s largest bank, made a come back by beating estimates in its financial results for the first half of 2018 — following a surprise fall in profits in the first quarter.

The bank said on Monday that reported profit before tax went up by 4.58 percent year-over-year to $10.71 billion in the six months of 2018 — beating analyst estimates of $10.38 billion, according to data compiled by Reuters.

The bank also reported an improvement in its revenue for the first half of the year: Reported revenue rose 4 percent year-over-year to $27.29 billion, also above Reuters’ estimates of $27.63 billion.

Operating expenses, a metric closely watched by investors, grew to $17.5 billion in the first half of the year from $16.4 billion in the same period last year.

HSBC’s chief executive, John Flint, said the results are in line with expectations.

“This is creating room to invest while maintaining our commitment to full-year positive adjusted jaws,” he said in a statement accompanying the results announcement.

Analysts had expected the bank to make a turnaround in its bottom line. Analyst estimates compiled by Reuters had pointed to a rebound in pre-tax profit to $5.627 billion in the second quarter, up from the $4.755 billion in the first quarter. That would have brought profit before tax in the first half of 2018 to $10.382 billion — what would be a 1.36 percent increase from the same period last year.

But some are even more optimistic. Dickie Wong, executive director of Kingston Securities, said he expects HSBC to report a 5 percent gain in pre-tax profit for the six months ended June.

“I think they can make a turnaround and rebound quite significantly,” Wong told CNBC’s Emily Tan on Monday ahead of the bank’s results announcement.

“First of all, we see a clear tendency everywhere, not just in Hong Kong, for interest margin to be improving. And also, HIBOR is on a good track, so I think HSBC can make a comeback after the slight drop in the first quarter,” he added.

HIBOR, or the Hong Kong Interbank Offered Rate, is the benchmark interest rate in the city. The indicator tracks interest rates in the U.S. and has been trending upward this year.

Another indicator that investors will be watching closely is operating costs, said Wong. That’s because the bank’s bottom line in the first quarter was hurt by an increase in expenses.

Flint announced in June that the bank plans to spend an additional $15 billion to $17 billion on areas including “growth and technology” between 2018 and 2020. Doing so would grow the bank’s cost base by “low-to-mid-single digit percentages each year until the end of 2020,” Flint said.

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