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Education Series: Single-Stock ETPs

HSBC Profit Plummets in Q3

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

The quarterly earnings season for the major European banks kicked-off on Tuesday, the 25th of October 2022, with UBS and HSBC releasing their results.

UBS, the Swiss banking giant reported net profit declined 24%, beating analysts’ expectations, helped by robust client inflows and lower costs, which smoothed the impact of the tough macro-economic environment.

HSBC, the London-headquartered and Europe’s largest bank, reported that pre-tax profit of $3.15 billion in Q3 2022 was down 42% from $5.4 billion in Q3 2021, but above analysts’ expectations of $2.45 billion.

Net profit has plunged to $1.91 billion, ahead of analysts’ expectations of $1.15 billion. Net profit decreased due to rising credit losses and impairments, even as its net interest income (NII) jumped 30% to $8.6 billion helped by rising borrowing costs globally.

Reported revenue in Q3 fell 3% to $11.6 billion, primarily reflecting an impairment on the planned disposal of its retail banking operations in France, as well as an adverse foreign currency translation impact of $1 billion.

The figures were significantly skewed by two large provisions that completely changed the quarterly result. The bank recorded a $2.4 billion impairment after the reclassification of its retail banking operations in France ahead of the sale of that business, as well as a net charge for expected credit losses and other credit impairment charges, compared with a net release of 1.7 billion in 2021.

However, the adjusted numbers reveal a completely different picture, with adjusted pre-tax profit rising by 18% to $6.5 billion and revenues by 28% to $14.3 billion, which shows that the underlying business remains in a good shape.

NII increased in all the bank’s businesses globally due to interest rate rises. NII measures what the bank makes from lending minus interest paid on deposits. NII rose to $8.58 billion from $6.6 billion, exceeding analyst’s expectations of $8.2 billion, and posted its best third quarter in more than eight years. Net interest margin (NIM) has increased to 1.57% climbing 22 basis points from Q2 2022.

Costs remain relatively contained against an increasingly tough macro environment, with the cost/income ratio rising to 68.7% from 66.5%, while the provisions have also fed through and shaved the CET1 ratio, to 13.4% from 13.6% in Q2 2022. The bank said that it needs to boost its core capital level of 13.4% back above 14% before it can resume buybacks and dividends. Noel Quinn Group Chief Executive is “very confident” HSBC could get the ratio above 14% by the first half of 2023, by increasing revenue and managing costs.

Quinn also said: “We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders.”

The bank said its outlook on revenue remained “positive”. It upgraded its net interest income guidance for 2022 to $32 billion, based on the current market consensus for global central bank rates. For 2023, HSBC expects net interest income of at least $36 billion, a reduction from the guidance of at least $37 billion, which reflects the impact of the pound’s depreciation against the U.S. dollar and a higher cost of funding.

Source: Tradingview

As macroeconomic headwinds weigh on the global economy, the share price of HSBC plunged 37% over the past eight months, declining from a high of $38.61 in February 2022 to a low of $24.77. The price tumbled more than 5% after the third quarter earnings were released and is likely to extend its downward trajectory in the short-term. The leading daily RSI indicator remains below its medium-term down trend line showing that internal momentum conditions are in poor state. The long-term trend has been down too, with the share price consistently posting lower highs on the monthly chart, steadily declining from its all-time high of $99.52 in October 2007. The key risk from a technical perspective is if the share price breaks below its key support of $24.31. Such outcome would have bearish implications and could trigger a decline to $21.00 over the medium-term. In our view such scenario has relatively high probability of occurring.

As prices never move in a straight-line fashion but rather fluctuate up and down within the boundaries of a larger trend, proactive traders looking to gain magnified exposure to the stock may use our 3x Long HSBC ETP to take advantage of expected short-term rebounds, and our -3x Short HSBC ETP to capture upcoming declines.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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