HSBC troubles are here as its shares fall 4% as their revenue fell in the fourth-quarter of 2018.
Choppy financial markets, tensions between the US and China, alongside the uncertainty surrounding Brexit are all weighing in on the global bank.
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Whilst pre-tax profits rose by 16% to $19.9bn, it was substantially smaller than the forecasted $22bn. For investors, the major concern is the negative adjusted jaws rate of -1.2%, which is used to determine if the revenue growth is outpacing cost rates.
HSBC has denoted the economic slowdown of China as a major reason for the disappointment; with Asia providing 90% of profits the bank is largely dependent upon the continent.
Brexit has continued to reflect poorly on those business’ operating in the UK, with HSBC blaming its “softening” of business activity in January, as customers remain cautious given the prolonged uncertainty over the departure of the EU.
Nevertheless, Chairman Mark Tucker reinforced that the bank was still in a strong position, denoting the continued increase in profits against the backdrop of a challenging external environment as a promising return.
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By GlobalDataThe economic slump of China has been the biggest blow to HSBC
Weighed down by rising borrowing costs and a clampdown on riskier lending, China is currently experiencing a slowdown. Growth of merely 6.6% in 2018 is the weakest China has experienced in the past 28 years.
The trade war between the US and China has certainly not helped HSBC. Trade restrictions initiated by US President Trump have exacerbated some problems within the Chinese economy. The threat of 25% tariffs on Chinese goods being a major source of concern.
After committing their business strategy towards the Asian market, the outlook for HSBC in China may cause some investments to be delayed.
Brexit has assisted in the financial woes of HSBC
CEO John Flint has indicated Brexit as a further reason for disappointing profits in the fourth quarter, noting that customers are “absolutely postponing investment decisions” due to the continued uncertainty.
Corporate clients have remained vigilant by pausing before making any financial decisions, which has negatively affected the income performance of HSBC.
HSBC has set aside £128m ($165m) as a contingency fund for the ever increasing risk of a hard Brexit as traders progressively display a cautious attitude towards investment.
The large sum helps to protect against any bad future loans, reflecting the increased risk of an economic hit as Britain continues to remain elusive upon its outcome, a mere month away from the deadline.
As part of its Brexit contingency plans, HSBC is to move up to 1,000 jobs to France, where it already has a full-service universal bank. However, the financial burden of such a move has taken its toll on the banking giant.
Evidently, Brexit has caused numerous problems for HSBC, which has undoubtedly assisted with their poor financial results.
