HSBC has exceeded profit forecasts in its Q1 report with profit before tax £12.7bn (down 2.3%) vs $12.6bn expected, while surprising the market with news of group chief executive Noel Quinn stepping down.
Quinn (pictured) became chief executive, initially on an interim basis, when John Flint left in 2019 after only a short stint, and then taking the international bank through the pandemic after being made permanent in March 2020.
Quinn said: “After an intense five years, it is now the right time for me to get a better balance between my personal and business life" adding that he would would consider other opportunities once “I’ve had a rest”.
He spent 37 years at HSBC, starting his career at Midland Bank and various subsidiaries, and ran its global commercial banking business from 2015. “I would never have dreamed of being the CEO of this bank 37 years ago, and it’s a privilege,” he said.
He added: “I think it’s right for me but I also think it’s right for the bank. The next phase of the journey, continuing to grow and develop the business is a multi-year phase, and it’s right to hand that challenge, that opportunity on to the next leader.”
The HSBC chair, Mark Tucker, said it was Quinn’s decision to retire. He added: “He has driven both our transformation strategy and created a simpler, more focused business that delivers higher returns”
On the results, Quinn said: “I’m pleased with our start to 2024. We completed the sale of our Canada business and agreed the sale of our Argentina business, both of which allow us to focus on markets with higher value international opportunities.
"Our good profit performance of $12.7bn in the first quarter has enabled us to continue the trend of rewarding our shareholders. We have announced a total of $8.8bn of distributions, consisting of a first interim dividend for 2024 of $0.10 per share, a special dividend of $0.21 per share from the Canada sale proceeds, and a new share buy-back of up to $3bn. Our 2024 guidance remains unchanged, including a mid-teens return on average tangible equity and continued cost discipline.“
In the detail of the financial performance (1Q24 vs. 1Q23), HSBC said profit before tax decreased by $0.2bn to $12.7bn. "This included a $4.8bn gain following the completion of the disposal of our banking business in Canada, inclusive of fair value gains on the hedging of the sale proceeds, partly offset by a $1.1bn impairment recognised in 1Q24 following the classification of our business in Argentina as held for sale.
"The reduction in profit before tax also reflected the nonrecurrence of a $2.1bn reversal in 1Q23 of an impairment relating to the sale of our retail banking operations in France, which was subsequently reinstated in 4Q23 prior to completion, and a $1.5bn gain recognised in 1Q23 on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK‘)", the bank said.
On a constant currency basis, profit before tax decreased by $0.3bn to $12.7bn. Reported profit after tax decreased by $0.2bn to $10.8bn.
"Revenue increased by $0.6bn or 3% to $20.8bn, including the acquisition and disposal impacts of the strategic transactions described above. Revenue growth also reflected the impact of higher customer activity in our Wealth products in Wealth and Personal Banking (‘WPB‘), and in Equities and Securities Financing in Global Banking and Markets (‘GBM‘), which in part mitigated a reduction in Foreign Exchange revenue, compared with a strong 1Q23."
In early reaction, Matt Britzman, equity analyst, Hargreaves Lansdown, said: “HSBC has thrown a spanner in the works. News that CEO Noel Quin plans to retire came as a surprise. Change at the top usually causes a wobble, more so when it's unexpected, and this does raise some questions about how the strategy will evolve from here. The HSBC portfolio is going through a reshuffle, and Quin’s far from completing his mission to get costs under control.
"He took the reins just as the pandemic was spreading across the world, a hugely uncertain time to lead a global bank and pivot away from its more traditional markets. He’s also had to navigate geopolitical tensions between the US and China, political unrest in Hong Kong, and plenty of shareholder challenges.
"He may be a hard act to follow, but market reaction suggests the strong position he leaves behind is enough to quell any uncertainty about who’ll lead the business from here.
He continued: "Looking at the results, there was, as usual, a lot to unpack. The Canadian sale has been completed, meaning the special dividend is being released as expected. HSBC is moving forward with plans to ditch the Argentina business and has taken a $1.1bn hit in the process of reclassifying it for account purposes.
"This is all part of the ongoing strategy to shift away from non-core areas and focus more on Asia which is where investors see the most potential.
"Strip out some of the one-off items, and underlying performance was better than expected. As we’ve seen across the banking sector, impairment charges came in lower than analysts had forecast. That’s particularly good news for HSBC, whose Chinese exposure has caused some issues in recent quarters. The lack of any material write-downs or impairments relating to Chinese commercial real estate is welcome.”
