HSBC’s stock (NYSE: HSBC) is trading around the same level as at the start of 2022, whereas S&P500 has dropped 17% over the same period. Further, at the current price of $30 per share, it is 29% below its fair value of $42 – Trefis’ estimate for HSBC’s valuation. The company surpassed the consensus estimates of profits in the first quarter. It reported total revenues of $12.5 billion – down 4% y-o-y. This could be attributed to a 7% y-o-y drop in the wealth & personal banking (WPB) unit, followed by a 4% decline in global banking & markets. The WPB unit primarily suffered due to lower investment distribution revenue, partially offset by an improvement in the net interest income (NII). Notably, the NII benefited from higher outstanding loan balances and increasing interest rates. On a similar note, revenues in global banking & markets were down due to lower FICC (fixed income, currency & commodity) trading and investment banking income. The negative growth was partially offset by a 6% increase in the commercial banking division, primarily driven by higher NII. In addition to the downfall in total revenues, the bank reported an increase in provisions for credit losses from -$435 million to $642 million in the quarter. This led to a 28% y-o-y decline in the adjusted net income to $2.8 billion.
The company’s top-line declined by 2% y-o-y to $49.6 billion in 2021. It was primarily driven by lower revenue in treasury & trade solutions, followed by a significant drop in the FICC trading income. In terms of interest income, the bank’s total NII fell by 4% y-o-y because of interest rate headwinds. That said, the provisions for credit losses saw a favorable decrease from $8.8 billion to -$928 million. It resulted in an adjusted net income of $12.6 billion, which was more than triple the 2020 figure.
The low-interest rate environment weighed on the net interest income of lenders in 2020 and 2021. However, central banks across the world have started to hike the interest rates in 2022. We expect the NII to benefit from improvement in the net income margin, although the loan growth is likely to remain slow due to macroeconomic concerns. On the flip side, we anticipate the market-driven revenues to normalize with the recovery in the economy. Overall, HSBC revenues are expected to touch $52.2 billion in FY2022. Additionally, HSBC’s adjusted net income margin is likely to see a slight dip in the year, enabling the bank to touch $12.6 billion in adjusted net income. This coupled with an annual EPS of $3.11 and a P/E multiple of just above 13x will lead to the valuation of $42.
|S&P 500 Return||-5%||-17%||76%|
|Trefis Multi-Strategy Portfolio||-9%||-25%||196%|
 Month-to-date and year-to-date as of 5/12/2022
 Cumulative total returns since the end of 2016