Will HSBC Q1 Earnings be Hit by Higher Operating Expenses? - Analyst Blog
HSBC Holdings plc HSBC is slated to report first-quarter 2015 results on Tuesday, May 5.
In the preceding quarter, this foreign bank delivered dismal earnings owing to fines and other regulatory issues. Higher operating expenses were partially offset by a fall in loan impairment charges and stable revenues.
Will HSBC succumb to the pressure of legal provision this time as well? Or will the company be able to overcome the legal and regulatory challenges? Let's see what factors might have affected the earnings.
Factors Influencing Q1 Results
Streamlining operations remained the primary trend among the non-U.S. banks, with HSBC being one of them. The company’s strategy to focus on its core operations, while divesting or closing less profitable ones, will continue to act as one of the chief cost-controlling factors.
However, operating expenses, in our opinion, should move up marginally due to increased risk, compliance and related costs. Further, similar to the fourth quarter, if the company decides to take additional provision for its legal and other regulatory issues, then expenses are bound to surge.
Also, the persistent low interest rate environment during the quarter compelled the central banks of most countries to prioritize growth over inflation control. As a result, subdued interest income growth is anticipated to hamper HSBC’s top-line growth in this quarter as well.
Nevertheless, loan impairment charges and other credit risk provisions are expected to trend lower, driven by changes made by HSBC in its loan portfolio since 2011. This is expected to support the company’s bottom line to some extent.
HSBC currently carries a Zacks Rank #3 (Hold).
Among other foreign banks, ItaúUnibanco Holding S.A. ITUB is slated to report first-quarter results on May 5 and Mitsubishi UFJ Financial Group, Inc. MTU will report on May 15. Moreover, Royal Bank of Canada RY is expected to report fiscal second-quarter (ended Apr 30) results on May 28.
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