16 July 2019
HSBC will be proactive in managing costs and investment to meet the risks to revenue growth, its chief executive says. Photo: Reuters
HSBC will be proactive in managing costs and investment to meet the risks to revenue growth, its chief executive says. Photo: Reuters

HSBC warns on China, UK slowdowns as 2018 profit disappoints

Banking giant HSBC warned on Tuesday that it may have to delay some investments this year after missing its 2018 profit forecasts due to slowing growth in its two home markets of China and Britain, Reuters reports.

Chief Executive John Flint said investment plans may have to be put off in order to avoid missing a key target known as ‘positive jaws’ – which tracks whether the bank is growing revenues faster than costs – for a second straight year, the report said.

“We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business,” Flint was quoted as saying after HSBC posted a lower-than-expected 16 percent rise in profit before tax for 2018.

HSBC reported on Tuesday a profit before tax of US$19.9 billion for 2018, compared with US$17.2 billion in the previous year, but below an average estimate of US$22 billion, according to Refinitiv data based on forecasts from 17 analysts.

In June, Flint had said HSBC would invest US$15-17 billion over three years in areas including technology and China, while keeping profitability and dividend targets little changed.

“The key thing is just to moderate the pace of investments … not to cancel it or change the shape of the investments,” Flint told Reuters.

The bank said it failed to achieve positive jaws in 2018 due to the weakness of markets in the fourth quarter.

Flint’s comments come as an economic slowdown in China challenges HSBC’s strategy of pouring more resources into Asia where it already makes nearly 90 percent of its profits, Reuters noted.

China’s economic growth slowed to 6.6 percent in 2018, the weakest in 28 years, weighed down by rising borrowing costs and a clampdown on riskier lending that starved smaller, private companies of capital and stifled investment.

Pressure on the economy could increase if Beijing and Washington do not reach a deal soon to end their year-long trade dispute.

HSBC’s profits in Asia grew by 16 percent to US$17.8 billion last year, accounting for 89 percent of group profit.

“Clearly our customers are really more cautious and are more thoughtful around this trade war with the US,” Flint said.

“It’s possible that we’ll see a slightly lower growth rate this year but we are still going to see a growth rate.”

Since taking over from Stuart Gulliver last February, Flint has largely stuck to the same China-focused strategy as his predecessor while attempting to revive HSBC’s ailing US franchise and putting less emphasis on its investment bank.

HSBC set aside US$165 million against possible future bad loans in Britain, which it said reflected the increased risks of a potential economic hit from Britain’s departure from the European Union, scheduled for next month.

HSBC joined UK peer Royal Bank of Scotland in warning that uncertainties related to Brexit could also drive businesses under.

“The longer we have the uncertainty the worse it’s going to be for the customers. Customers are absolutely postponing investment decisions … and that’s been the part of this slowdown that we have seen in the UK,” Flint said.

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