Daily Management Review

China & UK Slowdown Headwinds For It, Warns HSBC, Reports Disappointing Profits


China & UK Slowdown Headwinds For It, Warns HSBC, Reports Disappointing Profits
HSBC Holdings has warned of impact on business in the current year because of the slowdown of the Chinese economy and in the UK while presenting a disappointing annual profit for 2018 primarily because of higher costs and its trading business being hit by a stocks rout.
The bank wants to avoid missing one of the key targets that is known as ‘positive jaws’ and for that purpose, the bank could need to scale down its investment plans, said the Chief Executive of the bank John Flint while completing his first year after being appointed to head the company.  In banking parlance, ‘positive jaws’ is referred to a matrix that tracks whether the revenue growth of a bank is faster than costs.
Flint said that there is enough awareness with the bank about the headwinds and the risks that the current economic environment, the global trade disputes and the future of rates of interest presents. He added that the bank still remains on the path to achieving the growth targets that were announced in June last year.
“We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business,” Flint said on Tuesday.
The company reported a 16 per cent increase in 2018 profit before tax which was lower than what the market was expecting.
Areas such as technology and China would be the priority of the bank in terms of investing $15-$17 billion over a period of three years, Flint had said in June. But he had also pledged that the bank would also be focused on keeping the current target of profitability and dividend unchanged.
“The key thing is just to moderate the pace of investments ... not to cancel it or change the shape of the investments,” Flint told the media.
The negative market environment in the fourth quarter had forced the bank to miss achieving the positive jaws in 2018, the bank said.
Last year, 10 percent off MSCI’s 47-country world stocks index was wiped off because of a combination of factors that included the ongoing and escalating trade war with China, withdrawal of easing monetary policy measures by central banks across the world and decrease in revenues in some of the markets which had been performing well earlier. This was the first time that the index saw a double digit fall since the 2008 global financial crisis.
The plans and strategy of HSBC in making more investments and investing more of its resources for Asia were challenged by the slowdown of the Chinese economy, made worse by a bitter Sino-U.S. trade war. This is a critical challenge because the bank already makes over three quarters of its profits from this region already.
 “Clearly our customers are really more cautious and are more thoughtful around this trade war with the U.S.,” Flint said. “It’s possible that we’ll see slightly lower growth rate this year but we are still going to see a growth rate.”