Lloyds, HSBC, report tripling of revenue despite 'uncertain' outlook for global economy and soaring inflation

Chad Bray
South China Morning Post
Tue, 22 Feb 2022 12:00 UTC

© Sam Tsang

People walk past a HSBC branch in Central.

HSBC, the biggest of Hong Kong's three currency-issuing banks, said its fourth-quarter profit more than tripled as it benefited from gains in its commercial lending and global trade financing.

The bank's net profit jumped to US$1.79 billion in the three months ended in December, from US$562 million in the same quarter of 2020.

That bolstered HSBC's 2021 net income to US$12.6 billion, from US$3.89 billion in 2020. Pre-tax profit jumped to US$18.9 billion, more than the US$8.8 billion in 2020, but just missed the US$19.1 billion expected by analysts in a consensus estimate, as the lender reported weaker results in its wealth and investment banking operations in the fourth quarter.

"We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy," CEO Noel Quinn said in a statement. "We also remain cognisant of the potential impact that further Covid-19-related uncertainty and continued inflation might have on us and our clients."

HSBC, which generates the bulk of its profits in Asia, gave a more optimistic outlook for 2022 as central banks from the US Federal Reserve to the Bank of England move to tighten monetary policy in light of surging inflation in several major economies.

Both HSBC and its rival Standard Chartered have seen their shares trade near two-year highs in recent weeks on investor optimism about rising interest rates.

Analysts have said rising rates could be positive for bank earnings and help Hong Kong lenders reverse a compression of net interest margins over the course of 2021, particularly as the city's economy is pressured by a fifth wave of coronavirus infections.

"If rates follow the path currently implied by the market, we would expect to reach a return on tangible equity of at least 10 per cent for 2023, one year ahead of our previous expectations," Quinn said.

The bank's return on tangible equity was 8.3 per cent in 2021, compared with 3.1 per cent last year.

Despite the positive outlook on interest rates, the bank warned that its Asian wealth business would be weaker in the first quarter, its traditionally strongest quarter for new wealth sales.

"The underlying momentum in the business is strong," Quinn said on a conference call with journalists. "We believe once Covid has evolved in Hong Kong there is strong rebound potential in our wealth business."

The lender also took a US$500 million charge for potential soured loans in its Chinese commercial real estate portfolio as liquidity concerns at China Evergrande Group and other big Chinese developers continue to weigh on the property sector in general. Crosstown rival Standard Chartered took a charge on its Chinese commercial property portfolio as well in its fourth quarter.

Comment: More on Evergrande here: China's Evergrande shares hit record low as it edges closer to default, central bank lowers reserve requirement again in attempt to bolster growth

HSBC said it would pay a full-year dividend of 25 US cents a share, after paying a 15 cents dividend for 2020 when it resumed shareholder payments last year after pausing payouts for 12 months.

On top of its US$2 billion share buy-back announced in October, the bank said it would buy back an additional US$1 billion of shares.

Shares of HSBC fell 3.6 per cent to close at HK$56.45 in Hong Kong on Tuesday, following the announcement.

HSBC's results came less than a week after Standard Chartered missed expectations with a US$457 million loss and said it would invest US$300 million in its China-related businesses.

Meanwhile, profit at HSBC's Hang Seng Bank unit fell 16 per cent to HK$13.9 billion (US$1.78 billion) in 2021. HSBC owns 62.1 per cent of Hang Seng Bank.

Hang Seng attributed the decline to lower net interest income because of the historically low interest rate environment and a 3 per cent increase in reserves for potentially soured loans.

Gross impaired loans at Hang Seng soared by 82 per cent to HK$10.4 billion last year, driven by defaults by some mainland developers as they faced a credit crunch in the second half of the year.

Separately, HSBC released new targets as it seeks to reach net zero for carbon emissions in its loan portfolio by 2050. The bank said it would seek to cut "financed emissions" in its oil and gas portfolio by 34 per cent by 2030, and by 75 per cent in its power and utilities portfolio, in the same period.

Comment: It's looking a lot like the 'green' energy bubble has burst: Energy crisis bursts multi-billion green shares bubble

The bank also disclosed it was cooperating in an inquiry by the US Commodity Futures Trading Commission over the use of non-HSBC approved messaging platforms for business communications. The inquiry involves several financial institutions.

JPMorgan Chase's trading arm paid a US$200 million fine in December to US regulators over the use of personal messaging apps, such as WhatsApp, for business communications and its failure to retain records of those communications as required.

Comment: These fines usually pale in comparison to the profits facilitated by the secretive dodgy dealing.

Revenue at HSBC increased 1.6 per cent to US$12 billion in the fourth quarter, while net interest income rose 2.4 per cent to US$6.78 billion. The net interest margin, an important measure of profitability, slipped three basis points to 1.19 per cent.

Pre-tax profit declined by more than half to US$511 million in the fourth quarter in Hong Kong, its biggest market. Overall, pre-tax profit in its Asian business fell 11.8 per cent to US$2.01 billion.

After showing signs of recovery last year, the city's economy has been hit hard in recent weeks by a fifth wave of Covid-19 cases, with a quarter of Hong Kong's bank branches closed and the city's government considering mass testing of the entire population.

Quinn said the bank had no intention of shifting executives out of Hong Kong temporarily because of the city's restrictive measures to control the spread of the coronavirus, as some businesses are reportedly considering. The bank shifted several of its global leaders to Hong Kong last year.

"Hong Kong is a very resilient market," Quinn said. "It has a strong track record of rebounding from challenges. We're very confident about the future of Hong Kong."

In HSBC's global banking and markets segment, pre-tax profit declined by 45 per cent to US$387 million in the fourth quarter. Pre-tax profit in its wealth and personal banking segment fell 38 per cent to US$623 million.

The commercial bank reported a pre-tax profit of US$1.36 billion in the fourth quarter, compared with a profit before tax of US$355 million a year earlier.

Comment: The Guardian reports on UK bank Lloyds' soaring profits

Bonuses return at Lloyds as profits surge fivefold to £6.9bn

Bonuses are back for Lloyds bankers, after annual profits jumped more than fivefold last year.

The banking group said it was reintroducing bonuses for staff with a pool worth £399m, having scrapped payouts due to the impact of the pandemic a year earlier.

The decision reflected the stronger economic outlook and the bank's higher profits, Lloyds said. It also confirmed that higher bonuses would be handed to staff who deal with customers.

© M4OS Photos/Alamy

The banking group said it was re-introducing bonuses for staff with a pool worth £399m, having scrapped payouts due to the impact of the pandemic a year earlier.

Meanwhile, the bank revealed that it had 21 bankers on its payroll earning more than €1m (£835,000) a year, up from 17 staff a year earlier. One unnamed banker earned between €4.5m and €5m last year. That is more than the £2.5m paid to ex-chief executive António Horta-Osório, who stepped down last April. Its new boss, Charlie Nunn - who took over in August - was paid £1.3m, including a £349,000 bonus.

Lloyds said it had frozen unpaid bonuses for a trio of former bosses over charges linked to the HBOS Reading scandal, given they were in leadership positions during a failed compensation scheme that was later deemed "neither fair nor reasonable". It has resulted in a re-reviewing of compensation for victims in a scheme known as the Foskett Panel.

The suspension is understood to affect more than £1m worth of bonuses that were set to be paid to Horta-Osório this year. The decision also affects Lloyds' former chief financial officer George Culmer and ex-chief operating officer Juan Colombás.

In total, the bank took a £790m charge related to the HBOS Reading controversy which saw business customers pushed into distress or failure after they were loaded with unmanageable debts and fees between 2003 and 2007. It brought its total remediation charge - linked to dealing with past misconduct - to £1.3bn for 2021.

It seems that 'remediation charge' is a fancy (read: deceptive) way of saying fines paid to keep the regulators off their back.

Lloyds said "significant uncertainties remain" around the total financial impact of the HBOS Reading scandal and that it continued to support the dual set of reviews, including into how Lloyds handled the controversy. "We continue to support the independent Foskett Panel re-review and Dame Linda Dobbs' independent review process as we work to bring this matter to a conclusion," Lloyds said.

But the group, which owns Halifax and is the UK's largest mortgage lender, still reported annual profits of £6.9bn, significantly higher than the £1.2bn reported for 2020. While the increase was partially due to higher income, the biggest impact came from the reversal of loan loss charges throughout the year.

Lloyds released a total of £1.2bn worth of loan loss charges throughout 2021. That is compared with the £4.2bn it had been forced to put aside in order to offset a potential jump in loan defaults during the pandemic.

However, despite the surge in profits, Lloyds failed to meet average analyst forecasts for £7.2bn in profits.

Lloyds shares were down 9% on Thursday at 47p each. That was despitehigher shareholder payouts, with Lloyds announcing a dividend of 1.33 pence a share, bringing the total ordinary dividend for the year to 2p per share. It also announced a share buyback programme worth £2bn.

With news overnight that Russia had invaded Ukraine, Nunn confirmed that UK banks hCh00dlad "been working closely with the government in the last few weeks", including to make sure they had the right policies in place to enforce sanctions against Moscow.

Major lenders including Lloyds, Barclays and NatWest met Treasury minister John Glen on Wednesday afternoon to discuss the impact of sanctions, as well as the risk of cyber-attacks from Russia.

Nunn said that although the outlook "remains uncertain", particularly in light of new Covid variants and the impact of inflation on customers' finances, he was "confident that the group is well-placed to deliver increased returns".

The news came as he laid out a new strategy for the bank, which will mean focusing on areas including wealth management, while growing its market share in business banking, expanding its range of consumer products such as motor finance, and increasing income from larger corporate clients.

Whilst citizens across much of the planet suffering soaring inflation, energy, and food costs, banks are making record profits and paying out bonuses not seen since the financial crash of 2008, at the same time they continue to pay nominal fines for their endless criminal dealings, similar dealings that contributed to the economic crash that swept much of the planet.

With such a disconnect between the reality the masses must endure and the bounty banks are reaping, it's likely that the system is not far off a long overdue 'correction'; except that, this time, what with the establishment seemingly determined to roll out their nefarious Great Reset agenda, it seems unlikely that the system, as we know it, will ever recover:

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