Higher Rates to Aid HSBC's Q3 Earnings, IB &Trading to Hurt
HSBC Holdings HSBC is scheduled to announce third-quarter 2023 results on Oct 30.
The company’s second-quarter results reflected a rise in revenues and marginally lower expenses. Increased expected credit losses and other credit impairment charges were a headwind.
Key Factors Expected to Influence Q3 Results
Investment Banking (IB) Revenues: While global deal-making witnessed a slight rebound in the third quarter, M&A activities remained soft on a year-over-year basis. Headwinds like geopolitical tensions, the government shutdown, ‘sticky’ inflation, high interest rates and fears of a global economic slowdown continued to weigh on deal-making. Thus, the deal volume and total value numbers crashed in the third quarter. This is expected to have negatively impacted HSBC’s advisory revenues.
The IPO market witnessed considerable activity, with 26 IPOs jointly raising $7.7 billion in the quarter. The amount matches the total proceeds raised in 2022. However, the performance was still subdued and nowhere near normal. Also, follow-up equity issuances were soft in the to-be-reported quarter, while bond issuance volumes improved from the prior-year quarter. Thus, HSBC is not expected to have witnessed much growth in equity and debt underwriting fees.
Hence, growth in overall IB revenues is expected to have been muted in the quarter.
Trading Revenues: Market volatility and client activity were subdued in the third quarter because of seasonality. Moreover, while the risk of a near-term recession has faded, headwinds, including the economic slowdown, the central bank’s hawkish monetary policy and geopolitical issues, led to ambiguity among investors. These factors resulted in lower volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
Because of subdued volatility and lower client activity, HSBC’s trading business performance is not expected to have been significantly impressive.
Interest Income: Loan balances did not improve much in the third quarter. However, the central banks across the globe kept interest rates high to counter the raging inflation. Thus, HSBC’s interest income is anticipated to have improved, supported by higher rates.
Expenses: Over the past several years, HSBC has been able to control expenses. However, overall costs are expected to have been high in the to-be-reported quarter, given the company’s focus on growing market share in the U.K. and China, as well as strengthening digital capabilities globally.
HSBC Holdings plc Price and EPS Surprise
HSBC Holdings plc price-eps-surprise | HSBC Holdings plc Quote
Performance of Foreign Banks
Barclays BCS reported a third-quarter 2023 net income attributable to ordinary equity holders of £1.27 billion ($1.61 billion), down 16% from the prior-year quarter.
BCS recorded an increase in revenues, along with higher credit impairment charges. Operating expenses increased marginally in the quarter under review.
ICICI Bank’s IBN second-quarter fiscal 2024 (ended Sep 30, 2023) net income was INR102.61 billion ($1.2 billion), up 35.8% from the prior-year quarter.
IBN’s results were driven by a rise in net interest income and non-interest income. Growth in loans and deposits, and higher rates further supported the results. However, higher operating expenses posed as the undermining factor for IBN.
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