Financial Results

HSBC's Wealth, Personal Banking Profits Rise Sharply; Group Hikes Dividend

Tom Burroughes Group Editor 22 February 2023

HSBC's Wealth, Personal Banking Profits Rise Sharply; Group Hikes Dividend

The group stressed that it was setting a dividend pay-out of 50 per cent for this year and 2024, excluding significant items, and said it planned to go back to paying quarterly dividends from the first quarter of this year. The message could be seen as a response to criticisms from major shareholders, such as Ping An in China.

HSBC yesterday reported that its adjusted pre-tax profit for 2022 in wealth and personal banking rose 35.5 per cent year-on-year to $8.533 billion, while group results for the year rose to $24 billion from $20.6 billion.

Net operating income in the wealth, personal banking arm (which includes the private bank) stood at $23.2 billion in 2022, up from $21.2 billion a year before, the UK-based bank said in a statement.

Wealth, personal banking costs were $14.7 billion last year, up from $14.5 billion. This division had an adjusted cost/income ratio of 69.1 per cent. 

As far as the overall HSBC group was concerned, it logged a profit, attributable to shareholders, of $16.67 billion in 2022, widening from $14.693 billion. 

In the final three months of 2022, the bank said it logged a reported pre-tax profit of $5.2 billion, rising by $2.5 billion on a year before, boosted by “strong” revenue growth and weaker operating costs.

After slipping in early trade, shares in the bank were up by about 5 per cent in mid-afternoon London trade yesterday. 

Killik & Co, the UK-based stockbrokers, gave a cautious analysis: "The stock currently trades on 7.4 x consensus 2023 earnings, a premium to its UK-listed peers. It has a prospective dividend yield of 7 per cent in 2023. However, given the valuation and the fact that 50 per cent of pre-tax profits come from Hong Kong and mainland China, we remain neutral on the stock."

“The numbers themselves are strong compared to market expectations but the market was hoping for a little more good news in the outlook statement, so the shares are down by around 1 per cent this morning," Steve Clayton, head of equity funds, Hargreaves Lansdown, the UK firm, said in a note yesterday. "The business is performing well, but much depends on the group maintaining robust cost controls. That means more branch closures in the UK this year, with another 130 set to close. But for shareholders, that intention to pay out half of earnings suggests an ongoing yield from HSBC shares of perhaps as much as 7 per cent this year and next, with that extra 21 cent special dividend on top."

"HSBC represents one of the most direct routes of investing into the reopening of the Chinese economy. Whilst that remains on track, we would expect to see continuing encouraging trading news coming from the bank," he added.

HSBC’s Common Equity Tier 1 capital ratio – a standard international measure of a bank’s capital buffer – stood at 14.2 per cent, a fall of 1.6 percentage points, primarily driven by a cut of an 0.8 percentage point from new regulatory requirements and other effects.

The bank said it was sticking to its “focus on cost discipline and will target 2023 adjusted cost growth of approximately 3 per cent” on IFRS reporting standards. This figure includes up to $300 million of severance costs this year which HSBC said it expects to “generate further efficiencies into 2024.”

HSBC also boosted its dividend, a move that could be seen as thwarting calls from activist shareholders to break it up and gain better results. 

“Given our current returns trajectory, we are establishing a dividend pay-out ratio of 50 per cent for 2023 and 2024, excluding material significant items, with consideration of buy-backs brought forward to our first quarter results in May 2023, subject to appropriate capital levels. We also intend to revert to paying quarterly dividends from the first quarter of 2023,” it said. 

Last November, Ping An Insurance Group of China, aka Ping An, reiterated its intention to force HSBC into slashing costs and quitting sub-scale non-Asia markets. It has been urging HSBC to split off Asian operations and unlock shareholder value. The bank has rejected the idea, arguing that its global footprint is an asset, not a weakness. 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes