HSBC Holdings PLC (“HSBC”) is a British banking and financial services organization with over USD 3 trillion of total assets as of 31 March 2022. The Group has operations in 64 countries as with approximately 40 million customers as of last year, and it is a constituent of both the FTSE 100 Index and Hang Seng Index. It mainly operates through 3 segments: 1) Wealth and Personal Banking (“WPB“), 2) Commercial Banking (“CMB”) and 3) Global Banking and Markets (“GBM”).
Financial highlights
For the first quarter ended 31 March 2022 (“1Q22”), total reported revenue declined by 4% year-on-year to USD 12.5b due to unfavourable market impacts in life insurance manufacturing and lower investment distribution revenue in Hong Kong, as well as a fall in Global Debt Markets and Principal Investments revenue for its GBM segment. Nonetheless, HSBC expects its revenue for this year to grow by a mid-single digit percentage, well-supported by a growth in net interest income and lifting of covid-19 restrictions.
Reported profit after tax was down USD 1.1b to USD 3.4b, mainly due to higher expected credit losses (“ECL”) and other credit impairment charges compared to a year ago. This year, the bank projects ECL charges to normalise towards 30 bps of average loans due to the Russia-Ukraine conflict and increased economic uncertainties. Nonetheless, the bank remains on track to achieve 2022 adjusted operating expenses that are in line with last year despite higher inflationary pressures, while return on average tangible equity (“RoTE”) is projected to be at least 10% in 2023.
Net interest margin improved by 0.05 percentage points from 1.26% in 4Q21 to 1.21%. The increase was due to higher market interest rates. Net interest income improved from USD 6.51b to USD 7.00b in the quarter. We expect HSBC’s net interest margins and income to improve following more rate hikes in the US and EU.
Credit Profile
In terms of its credit profile, HSBC still maintains a strong liquidity and solvency profile as of 31 March 2022. Common equity tier 1 (“CET1”) capital ratio was down 1.7 percentage points (“ppt”) from 4Q21 to 14.1% in 1Q22, mainly driven by a 0.8 ppt impact from regulatory changes and 0.4 ppt impact from equity valuation loss in financial instruments due to the steepening of yield curves. Besides that, the bank also plans to do a share buy-back of up to US 1b, which lowered its CET1 ratio. 1Q22 liquidity coverage ratio (“LCR”) was 134%, while net stable funding ratio (“NSFR”) stood at 138%, both of which are well-above the regulatory requirements of 100%.
New bonds from HSBC on Bond Express
|
Bond name |
Issuer |
Maturity/ next call date |
Years to maturity / next call |
Ask price |
Yield to maturity/ next call (%) |
|
HSBC 4.375% 23Nov2026 Corp (USD) |
HSBC Holdings PLC |
23 Nov 2026 |
4.1 |
93.48 |
6.19 |
|
HSBC 6.500% 20May2024 Corp (GBP) |
HSBC Holdings PLC |
20 May 2024 |
1.6 |
99.96 |
6.50 |
|
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 3 Oct 2022. |
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Bond Express will be onboarding two HSBC bonds – 1) HSBC 4.375% 23Nov2026 Corp (USD) and HSBC 6.500% 20May2024 Corp (GBP).
The HSBC 4.375% 23Nov2026 Corp (USD) is a subordinated note with no call date or no coupon reset date. It matures on the 23 November 2026 and is currently yielding 6.19% with 4.1 years to maturity.
Investors can invest in the HSBC 6.500% 20May2024 Corp (GBP) to take advantage of the fall in GBP. The HSBC 6.5% 2024s have an indicative yield to maturity of 6.50% with around 1.6 years to maturity. This bond is senior unsecured with a bond credit rating of A- / A+ (S&P / Fitch).
We think HSBC is set to benefit from the rise in interest rates as it will positively impact net interest margins. Additionally, the bank is also well capitalised with a CET1 ratio of 14.1%. Furthermore, with the US treasuries moving upwards, we think the spreads of these bonds are trading at attractive levels and investors who are seeking higher yields can consider these bonds.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in HSBC 6.250% Perpetual Corp (USD) and HSBC 6.500% 20May2024 Corp (GBP) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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