HSBC Holdings plc (ADR) (NYSE:HSBC) 4Q Earnings Fail To Meet Expectations

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HSBC Holdings plc (ADR) (NYSE:HSBC) delivered a loss for the fourth quarter as the analysts’ were expecting the company to earn profit. That was because of increasing bad loans to oil and gas sector due to the weak global oil prices apart from increased impairment charges as its income from lending witnessed a drop in the fourth quarter. As a result, the stock was trading more than 3% down in the London Stock Exchange.

Efforts To Boost Profitability Suffers Setback

HSBC Holdings’ latest results was a setback to its CEO, Stuart Gulliver’s, efforts to boost the profitability as part of a fresh tactic unveiled in June. The objective was to save a maximum of $ 5 billion before the end of the next year by cutting down 25,000 jobs and exit from unprofitable ventures or nations. Aside from that, the bank wanted to boost its investments in Asia.

The company suffered a pretax loss of $858 million in the fourth quarter. That included charges of $773 million on the fair value of its debt. Excluding that, the bank’s pre-tax profit would have been $1.9 billion. However, the figures were shy of the expectations. The Bank’s provision for bad loans, as well as, credit-risk provisions jumped 32% to $1.64 billion. As a result, the charges climbed to $3.7 billion for the full year, which was $700 million more than the analysts’ estimation. The increase in bad loan was due to nearly $1 billion of loan impairment charges hurt by the weakness in the oil and gas industry.

Good Start

Despite disappointing results, HSBC Holdings’ CEO said that the Bank has made a good start though there was plenty to achieve its objectives. He pointed out that its risk-weighted assets were reduced by $124 billion in 2015. That meant nearly half-way towards the set objectives for the next year end.

Investec Plc analyst, Ian Gordon, said that there was a fresh hope for reducing cost due to HSBC Holdings weak revenue outlook. He believes that such efforts would do well for it to exceed the current targets. He has a rating of Buy on the shares of the company. He sees that return on equity of 10% plus would not be possible even in the year 2018.

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