HSBC’s profits missed expectations after a “challenging” fourth quarter that was hobbled by uncertainty surrounding the US-China trade dispute and Brexit.
The London-based banking giant’s pre-tax profits rose 16% to 19.9 billion US dollars (£15.4 billion) for 2018 compared with the previous year but fell short of analysts’ estimates of 21.3 billion dollars (£16.5 billion).
Reported revenue increased 5% to 53.8 billion dollars (£41.6 billion).
London-listed shares fell 2.6% to 647.5 dollars on the news.
HSBC’s common capital ratio, a measure of a bank’s financial strength, fell to 14% at the end of last year from 14.5% at the end of 2017 due to adverse foreign exchange movements and higher lending.
HSBC is Europe’s biggest bank but earns most of its profits from Asia and has been scaling up its business in the Far East.
Chairman Mark Tucker acknowledged the risks associated with uncertainty over global trade and warned that the US-China trade dispute is likely to continue this year.
“The system of global trade remains subject to political pressure, and differences between China and the US will likely continue to inform sentiment in 2019. However, the conclusion of major trade agreements … provide important counterweights that could give impetus to international trade in the year ahead.”
He added: “China remains subject to domestic and external pressures, but we expect it to maintain strong growth. We also expect further financial liberalisation to form part of China’s response to changing external conditions. This will benefit domestic and international customers and investors.”
Mr Tucker said many of the bank’s UK customers are also “cautious about the immediate future, given the prolonged uncertainty surrounding the UK’s exit from the European Union”, but that HSBC’s business in France will provide continuity for customers.
As part of its Brexit contingency plans, HSBC is to move up to 1,000 jobs to France where it already has a full-service universal bank after buying up Credit Commercial de France in 2002.
Meanwhile, chief executive John Flint, who took the helm last February, said: “Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017.
“This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020.”
However, Mr Flint said there has been “some softening of credit performance in the UK” and warned over the outlook for the UK economy.
“Despite more challenging market conditions at the end of the year and a weaker global economic outlook, we are committed to the targets we announced in June.
“We remain alert to the downside risks of the current economic environment, especially those relating to the UK economy, global trade tensions and the future path of interest rates.”
HSBC also revealed that the European Commission last October asked the bank for information around potential coordination in foreign exchange options trading, adding that the “matter is at an early stage”.
Neil Wilson, chief market analyst at Markets.com, said HSBC’s focus on China and Asia is a “double-edged sword” for the bank.
“There are still huge returns and opportunity in these markets, but the bank’s exposure to this region means the recent slowdown in China in particular, as well as fears about what the trade landscape will look like going forward, can bite”.
While Richard Hunter, head of markets at Interactive Investor, said HSBC’s figures are strong, but not “strong enough to allay concerns which have tended to overhang the (banking) sector”.
He said HSBC remains a behemoth within global banking but that the lender is also a work in progress pointing to the 13% decline in its shares over the last year compared to the 0.4% fall for the wider FTSE 100 index.