HSBC’s stock (NYSE: HSBC) has gained 1% YTD as compared to the 14% drop in the S&P500 index over the same period. Further, at the current price of $31 per share, it is 24% below its fair value of $40 – Trefis’ estimate for HSBC’s valuation. The company topped the consensus estimates of profit in the third quarter of 2022. It posted total GAAP revenues of $11.6 billion – down 3% y-o-y, mainly due to lower noninterest revenues. The noninterest revenues primarily suffered in the wealth and personal banking segment due to impairment on the planned disposal of the retail banking operations in France. However, the impact was somewhat offset by a 30% increase in the net interest income (NII), which benefited from improvement in the interest rate environment and outstanding loan balances. On the expense front, the provisions for credit losses increased from -$659 million to $1.08 billion. It led to a 42% y-o-y decrease in the profit before tax to $3.1 billion. Overall, the adjusted net income was down 46% to $1.9 billion in the quarter.
The company’s top line was reduced by 2% y-o-y to $36.9 billion in the first nine months of FY 2022. It was primarily driven by lower wealth and personal banking revenues, partially offset by a 17% rise in the NII. That said, the adjusted net income decreased by 6% y-o-y to $10.2 billion. It was because of lower revenues and an unfavorable increase in provisions for credit losses. Notably, the tax credit received over the same period diluted the impact of higher expenses to some extent.
Moving forward, we expect the NII to continue its growth momentum in Q4. Altogether, we estimate HSBC revenues to touch $52.8 billion in FY2022. Additionally, HSBC’s adjusted net income is likely to remain around $13.45 billion in the year. This coupled with an annual GAAP EPS of $3.31 and a P/E multiple of just above 12x will lead to a valuation of $40.
|S&P 500 Return||0%||-14%||82%|
|Trefis Multi-Strategy Portfolio||1%||-17%||229%|
 Month-to-date and year-to-date as of 12/2/2022
 Cumulative total returns since the end of 2016