Shares in the British lender slid as much as 7% in early London trade against a broadly flat FTSE index (.FTSE), heading for their worst single-day drop since the COVID-19 pandemic erupted in March 2020 as investors also noted higher costs.
The share price plunge came despite the bank announcing a new $2 billion buyback, an annual dividend of $0.61 per share and the intention to pay a special dividend of $0.21 per share once it completes the sale of its Canada business.
The negative market reaction despite the record profit and chunky payouts highlights the challenge Asia-focused HSBC faces in matching investors' sky-high hopes, as it grapples with China's weaker than expected economic recovery.
The bank's 2023 pretax profit jumped 78% to $30.3 billion, but still missed a consensus estimate of $34.1 billion due largely to the unexpected China writedown.
HSBC's costs also grew 6% in 2023, more than it had forecast, due to the impact of higher-than-expected bank levies in the U.S. and Britain. It also said costs would grow a further 5% in 2024, as it grapples with inflation while investing in its businesses.
HSBC's $3 billion impairment on its stake in China's Bank of Communications (BoCom) is the largest yet by an overseas lender, as the country's real estate crisis deepens.
The writedown followed a review of its likely future cash flows and outlook for loan growth and interest margins, HSBC said.
Chief Executive Noel Quinn said, however, that he believed that valuations in mainland China's commercial real estate market had bottomed.
Quinn said he was seeing a "progressive and gradual recovery" but that it would "take a few years for the market to work its way through the current challenges."
Matt Britzman, equity analyst at Hargreaves Lansdown, said that mainland China remained a question mark for HSBC and that its outlook looked somewhat worse than expected.
"2023 was a strong year for HSBC, but earnings momentum looks to be coming to an end and things are set to get tougher from here," he said in a note to clients.
CAUTIOUS OUTLOOK
Europe's biggest lender said it remained cautious about the loan growth outlook in the first half of 2024 against slowing economic growth in many economies where inflation persisted.
The bank reported a 14.6% return on tangible equity (ROTE), a key performance target, in 2023, which fell behind analysts' forecasts for 17%. It said it continued to target ROTE in the mid-teens for 2024.
HSBC’s wealth business was a bright spot for the bank, with revenues up 8% to $7.5 billion, partly boosted by the acquisition of Citigroup’s wealth business in China last year.
The wealth unit – which HSBC has been trying to grow, particularly in Asia - also attracted net new invested assets of $84 billion, up from $80 billion in 2022.
HSBC said its bonus pool rose to $3.8 billion from $3.4 billion in 2022, reflecting improved performance, and it would also launch a new variable pay scheme for junior and middle management staff.
CEO Quinn saw his total pay double in 2023 to $10.6 million from $5.6 million the year before, as long-term incentives from his appointment in 2020 began to vest, boosting his variable pay.
