HSBC has reported record pre-tax profits of $30.3bn for fiscal 2023, up 78% y-o-y. But the bank’s earnings are impacted by a $3bn charge on its stake in China’s Bank of Communications.(BoCom). This comes as lenders across China are hit by increasing loan losses and a crackdown on credit as the authorities look to tackle debt piles. Market reaction was unkind, marking the HSBC share price down by 7%, the worst one day drop the bank’s share price has suffered since the beginning of the Covid-19 pandemic.

HSBC encountered further hurdles over the course of the year, with the winding down of its wealth and personal banking business in New Zealand and nightmare technical difficulties on Black Friday.

Despite these issues, HSBC saw profit after tax increase by $8.3bn to $24.6bn.

As with its traditional UK rivals, HSBC is actively shrinking its UK branch network. The  branch network has more than halved since 2017, from 748 outlets to 327.

“Mainland China remains a question mark”

Matt Britzman, equity analyst, Hargreaves Lansdown, said: “If there was an award for simple and clean results then HSBC would get the booby prize. There’s a lot to unpack here, with the fourth quarter alone impacted by two major impairments: a $3bn write-down in the value of BoCom and a $2bn write-down from the sale of its French operation. Backing out a lot of the mess, it looks like performance was a little worse than expected with higher operating costs more than offsetting slightly better impairments.

“Mainland China remains a question mark. The write-down of BoCom follows a similar pattern to what Standard Chartered did last quarter and while loan loss charges were better than expected, the Chinese commercial real estate sector continues to be weak.

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“2023 was a strong year for HSBC, but earnings momentum looks to be coming to an end and things are set to get tougher from here. The group has options, not least from a capital perspective with today’s $2bn buyback a teaser of more to come once the sale of its Canadian business completes. But when it comes to UK banks, the more traditional lenders like NatWest and Lloyds look to be better placed for upside.”