HSBC is under pressure, dropping 5% in early Eurozone trading following disappointing report, notes Fiona Cincotta.

HSBC Holdings (HSBC) has dropped more than 5% as trading kicks off on Tuesday in the UK following the release of its full year results.

Results

  • 33% fall in pre-tax profits to $13.35 billion including. $7.3 billion goodwill impairment charge
  • Revenue +4.3% to $56.1 billion.
  • Return on tangible equity 8.4% 2019 vs 8.6% 2018.

To say these figures were disappointing would be an understatement. They lay bare the scale of the turnaround required at the inefficient banking giant to put it back on track.

There was a lot to cause concern. A 33% fall in pre-tax profit, a $7.3 billion goodwill impairment charge in Europe, suspending its share buyback, a troubled outlook in Asia its most profitable region owning to Coronavirus and a culling of 15% of its workforce. These numbers paint a picture of a very troubled bank.

Return on tangible equity which is considered a key profitability measure fell 0.2% in 2019. It is expected to be 10% to 12% in 2022.

Restructuring

HSBC set out its restructuring plans which aims to overhaul a bank that has grown too big, too inefficient and too complex. HSBC plans to shed $100 billion in assets, shrink its investment bank and revamp its U.S. and European business in a move that will see 35,000 jobs cut over 3 years.

While on paper the remodeling plan looks encouraging as it addresses many of the known concerns, it is a huge amount of work and it remains to be seen how it settles.

Outlook

The timing will add another layer of challenges as HSBC faces headwinds from the low interest rate environment and disruptions from Coronavirus, which it says has significantly impacted operations. In the long run the impact of Coronavirus could reduce revenue and result in bad loans rising amid disrupted supply chains.

The million-dollar question remains unanswered as interim CEO Noel Quinn continues in his very public audition for the permanent role. 

Levels to watch

HSBC was trading below its 200-day simple moving average prior to its results. After dropping 5% in early trade on Tuesday, HSBC dived through its 50- and 100-day simple moving averages. Support can be seen at $36.06 its low from Feb. 3. A move below there will confirm control is in the hands of the bears and could take HSBC back to levels not seen since 2016.

Fiona Cincotta is a Market Analyst for Currency Live