(Feb 21): HSBC Holdings plc reported that its fourth-quarter (4Q) profit fell 80%, after taking unexpected charges on holdings in a Chinese bank, and from selling its French retail operations.

Pre-tax profit fell to US$1 billion (RM4.79 billion) in the final three months of last year from US$5.05 billion in the year-earlier period, the London-headquartered bank said in a statement. The lender took a US$3 billion charge on its holding in Bank of Communications Co (BoCom) and US$2 billion on its French sale.

“That has no impact on our capital position of any significance. It does not prohibit distribution,” chief executive officer Noel Quinn said of the BoCom charge in an interview with Bloomberg Television. “It is a technical accounting issue. I also want to reiterate — we have strong confidence in the Chinese economy.”

While rising interest rates globally boosted HSBC’s full-year earnings to a record, the bank has faced headwinds over the past year in China, one of its key growth markets. The ongoing real estate meltdown has not only hurt the world’s second-largest economy, but has forced HSBC to set aside money to cover potential losses, including US$200 million in the quarter.

At the same time, HSBC announced a US$2 billion share buy-back and a fourth quarter interim dividend of 31 cents a share. Quinn warned in the statement that the macro environment remains “challenging”, and the outlook remains uncertain amid geopolitical volatility in Europe and the Middle East.

The bank’s shares slid as much as 3.8%, as trading resumed in Hong Kong on Wednesday.

Asia pivot

HSBC is several years into a strategy of pivoting its business increasingly towards the faster-growing markets of Asia, where the bank makes most of its money. Disposals of businesses in France and Canada have been balanced by acquisitions of insurance and wealth management assets in Asia, a region with swelling ranks of the wealthy.

HSBC, which gets the bulk of its profit from Asia, initially paid US$1.75 billion for a 19.9% stake in Shanghai-based BoCom in August 2004.

“We believe our partnership with BoCom has been a good partnership for 20 years, and that status has not changed at all,” Quinn said.

HSBC cut its overall exposure to Chinese commercial real estate to US$12.1 billion, down by US$4.6 billion from 2022. Its US exposure was cut by 27% to US$3.9 billion.

Further acquisitions are on the cards. Quinn said last year that if he saw opportunities to grow the business through more bolt-on deals, he would do it. But he also cautioned against the idea that the bank would engage in major acquisitions.

“You can see that our confidence in China is still strong, and we’re investing and we’ve done three bolt-ons there,” Quinn said. “We’ll continue to look for bolt-ons, particularly in our wealth management business.”

Geopolitical tensions remain an issue for the bank, given its position as a financial bridge between the West and China. Last year, the company faced a political backlash in the UK, after its then head of public affairs, Sherard Cowper-Coles, made controversial remarks about the British government’s handling of its relationship with China.