HSBC posted a record annual profit today but missed analysts’ estimates as it was forced to take a $3bn hit due to its exposure to a Chinese bank. The UK-based lender, which does most of its business in Asia, saw its profits for the fourth quarter of 2023 fall by 80 per cent year on year.
Overall, its full-year 2023 pre-tax profits rose by 78 per cent to $30.3bn, driven by high global interest rates. However, this was below the $34.1bn average estimate of brokers compiled by the bank. HSBC experienced a “valuation adjustment” of $3bn on its 19 per cent stake in China’s Bank of Communications, CEO Noel Quinn said. Following the news of the writedown, HSBC’s shares fell 3.8 per cent in Hong Kong and 6.8 per cent in London.
“BoCom remains a strong partner in China, and we remain focused on maximising the mutual value of our partnership,” HSBC said. “Our positive views on the medium and long-term structural growth opportunities in mainland China are unchanged.”
The Financial Times reported that the results highlight the impact of China’s slowing growth on international banks with significant exposure to the country. Standard Chartered, a competitor of HSBC, took a $700mn impairment charge in October due to its investment in China Bohai Bank.
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The governor of the Bank of England has said that inflation does not need to reach the central bank’s 2 per cent target before it starts cutting interest rates.
Andrew Bailey told UK members of parliament at a Treasury select committee yesterday that although the central bank needs to see progress in service prices, wage growth and the labour market before reducing rates, it’s “not unreasonable” for markets to expect a cut in interest rates this year.
Earlier this month, data from the Office for National Statistics revealed that the UK fell into a technical recession at the end of last year. Gross domestic product fell by 0.3 per cent in the final quarter of 2023 compared with the previous three months, which saw a 0.1 per cent drop. In comparison to previous downturns, the UK was suffering from a “very small recession” and is showing “distinct signs of recovery”, Bailey noted.
Additional figures have confirmed that the UK’s inflation rate remained steady at 4 per cent in January, despite predictions from many economists anticipating an increase. Bailey said he expected the county’s inflation rate to reach its 2 per cent target temporarily within the next few months before rising to 2.75 per cent by the end of 2024.
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China’s central bank has slashed a key reference rate for mortgages by a record amount, as it aims to ramp up support for the country’s struggling property sector and bolster the broader economy.
According to a statement by the People’s Bank of China on Tuesday, the five-year loan prime rate was lowered by 25 basis points to 3.95 per cent. The move represents the largest reduction since the reference rate’s establishment in 2019, significantly exceeding analysts’ predictions.
The Chinese real estate market experienced a slump following regulatory measures by Beijing in 2020. These measures targeted developers’ heavy dependence on debt for growth, leading to the bankruptcy of some major real estate firms. This downturn has added significant downward pressure on both consumer and overall economic growth in the second-largest global economy.
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South Korea’s five largest financial companies are facing around Won1tn ($749mn) in losses from their investments in overseas real estate, according to Yang Kyung-sook, a politician currently serving as a Democratic Party member in the country’s National Assembly.
Hana Financial Group has the largest exposure, with more than Won6.2tn invested in overseas real estate. Yang’s data, first reported by local media outlets and picked up by Bloomberg, is based on information provided by the companies in mid-January.
Investors in South Korea are experiencing growing unease regarding the financial sector’s vulnerability to declining global property valuations. MG Community Credit Cooperatives, one of South Korea’s largest credit unions, closed last year after reporting a Won60bn loss on real estate-related loans.
