Judging by their buyback promises,
the billionaire’s bank, is more confident about weathering the year ahead than
its Asia-focused rival.
The Swiss wealth manager had its best first quarter since 2007, and on Monday nudged up 2022 buyback expectations to the top of its range. HSBC took a more muted line: It will follow through on earlier buyback promises, but warned that more were unlikely this year. It is shaping up to be a mixed quarter for European banks, as was the case for their U.S. peers.
A key reason for the contrast between two of Europe’s largest financial institutions is that HSBC is in the midst of a turnaround. Refocusing on Hong Kong and China builds on its historic expertise but leaves it exposed to tough anti-Covid measures, muted market sentiment and wobbles in the Chinese commercial real-estate sector.
HSBC reported lower quarterly revenue and profits and a sizable expected credit loss that included $250 million related to Russian counterparties, $160 million for Chinese commercial real estate, and $525 million to account for the war, inflation and rising macroeconomic uncertainty. The bank has $1.3 billion of exposure in Russia and another approximately $400 million to Russian companies, but Chief Financial Officer
said a dramatic change would be required to increase the charge. He did caution that the Chinese real-estate situation is “very fluid.”
Over the quarter the bank’s core Tier 1 capital ratio fell from 15.8% to 14.1%, and Mr. Stevenson warned it could dip below its 14%-to-14.5% target range this year—hence the parsimony on buybacks. Looking ahead, supply-chain bottlenecks will likely continue to boost its trade finance business, and rising interest rates should increase income.
Meanwhile, UBS is in growth mode after a turnaround last decade. It is adding assets across businesses and increasing profits, buoyed by a record quarter in its global markets business, which capitalized on volatility. Group credit losses were minimal, but there was a $100 million income impact related to Russian assets, with total Russian exposure reduced to about $400 million.
One area of potential concern is the profit decline in Asia, a key growth market for UBS. Its Asian client base has been deleveraging over the past few quarters in response to Beijing’s common prosperity initiative and changes in tech and property policy. Hopes for higher risk appetite could be scuppered by new Covid-19 restrictions and higher inflation.
UBS shares rose roughly 2%, while HSBC’s fell by almost 5%, but the contrasting results shouldn’t have been too surprising. Like the ultrawealthy it serves, UBS has had a good pandemic. Its shares trade around par to its tangible book value, strong for a European bank but cheap compared with American peers. HSBC shares are optically even cheaper on about 0.7 times tangible book, but the company has consistently struggled to overhaul a sprawling business that worked best during the era of unconstrained globalization.
Neither bank expects a smooth road ahead, but HSBC’s trip is all the more challenging because it is working on its engine as it goes.
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