HSBC Seeks to Stop Slump in Revenue as Buybacks Aren’t Forever

  • Analysts see another $2 billion of share repurchases in 2017
  • Lender announces first-quarter earnings on Thursday May 4

HSBC Holdings Plc has appeased investors with $3.5 billion of share buybacks, but after five years of declining revenue analysts are looking for evidence the bank is stabilizing its top line when it reports earnings Thursday.

The lender’s first-quarter adjusted income will drop about 9 percent to $12.6 billion from a year earlier while pretax profit is seen declining 2 percent to $5.3 billion, according to estimates compiled by Bloomberg. Analysts are also seeking guidance on the size and timing of further stock repurchases as capital is released from HSBC’s shrinking U.S. business, with as much as $2 billion forecast to come in the second half of the year.

“A return to revenue growth remains key,” David Lock, an analyst at Deutsche Bank AG with a hold rating on the company, wrote in an April 25 report. Lock said he expects to see $1.5 billion of stock bought back in the second half. The start of the year “is seasonally strong for the investment bank and results from U.S. peers suggest a relatively good quarter.”

Read More: HSBC unveils $1 billion buyback as fourth-quarter profit plunges

HSBC Chief Executive Officer Stuart Gulliver, in what may be his final full year in charge of Europe’s biggest lender, is battling to restore growth. Revenue plunged about $20 billion since he started in 2011 as the firm sold off almost 100 businesses and exited dozens of countries. The London-based lender has recruited Mark Tucker, the chief of insurer AIA Group, to be its next chairman and he will start looking for a new CEO when he starts in October. 

Analyst Commentary

  • Citi (Ronit Ghose): 1Q results to be “solid” due to improving revenues, lower costs; recent GBP strength positive for EPS but could weigh on London-listed stock in near term
  • Credit Suisse (Sanjay Jain, Claire Kane): Sees relatively “clean” update for 1Q given the supportive macro backdrop; focus to be on net interest margin and volume trends 
  • Investec (Ian Gordon): Start of repatriation of about $8 billion of surplus or “trapped” capital from the U.S. will trigger further share repurchases
  • Morgan Stanley (Chris Manners, Anil Agarwal): Sees cost control remaining “robust,” with operating expenses excluding bank levy down 4% q/q

1Q17 AVERAGE ESTIMATES

  • Bloomberg-compiled estimates, on adjusted basis, based on average of analysts:
    • Pretax profit: $5.3 billion (four estimates)
    • Revenue: $12.6 billion (five estimates)
  • Broker estimates, on adjusted basis, compiled by HSBC:
    • Pretax profit: $5.3 billion
    • Revenue: $12.4 billion
    • Operating expenses: $7.1 billion
    • Loan impairment charges $644 million

TIMING

  • HSBC reports around noon Hong Kong time on Thursday (5am London)
  • Conference call at 2:30pm HKT (7:30am London)
    • Call number +44 1452 584 928, password HSBC
  • Click for webcast
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