HSBC Profits Before Tax Beat Estimates

HSBC Profits Before Tax Beat Estimates
May 4, 2016

 
Yesterday, HSBC Holdings Plc (NYSE:HSBC), the fourth largest bank by assets, reported a better than expected adjusted net profit for the fiscal first-quarter of 2016. Following the results, the shares of HSBC lost 1.90%, and closed at $32.61 on Tuesday. Even though the adjusted net profit for the first-quarter fell 18% on a y-o-y basis, traders should still look for opportunities to purchase the stock.

For the first-quarter, the banking behemoth reported adjusted revenue of $13.9 billion, down 4% from the corresponding period of 2015. The adjusted profit before tax was $5.4 billion, down 18% from $6.6 billion in the similar period of 2015. The analyst’s expectation were a pre-tax profit of $4.2 billion. The first-quarter non-adjusted pretax profit declined to $6.1 billion, down 14% from $7.1 billion in the similar period from a year ago. The first quarter earnings per share stood at $0.20, compared to $0.26 per share in the first quarter of 2015.

During the first quarter, HSBC’s operating expenses of $7.9 billion were below the Wall Street’s expectation of $8.5 billion. The bank also declared a fiscal 2016 first-quarter dividend of $0.10 per share, which is in line with the dividend declared in the first quarter of 2015.

In the aftermath of 2008 financial crisis, the first quarter of that year was considered to be one of the worst ever for HSBC, Europe’s biggest lender. However, in this quarter, HSBC has returned to profit despite the difficult business environment. It should be noted that the bank reported a loss in the previous quarter. This indicates that the cost cutting plans, announced last year to save up to $5 billion in two years, is working perfectly.

Keeping with this tone, Daniel So, the analyst at CMB International Securities, stated that the effects of cost cutting measures can be increasingly seen in the coming quarters.

The market volatility in January and February affected the wealth management business. However, the diversified structure enabled the bank to increase its market share in the debt markets, mergers and acquisition deals in China and syndicated lending. This indicates that the bank is well poised to gain further from its strength in commercial banking.

HSBC is also in the process of divesting or shutting down non-profitable operations. Notably, having failed to receive any interest from buyers, the bank is currently in the process of restructuring its Turkish operations.

The Common Equity Tier (CET) 1 ratio of the bank was 11.9% at the end of first quarter. The ratio has relieved investors’ concerns related to the bank’s financial strength.

On the price chart, technically, the stock has support at 32.30. Resistance exists at 40 levels. The RSI continues to remain above 50.

HSBC - Technical Analysis - 4th May 2016

Thus, considering the possibility of an uptrend, a binary option trader should purchase a one touch call option contract with a strike price in the range of $35 to $40. The contract has a higher probability of success, if the trader chooses a contract expiry date in the first week of June.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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