May 8 (The following statement was released by the rating agency)
Fitch Ratings says HSBC Holdings PLC's latest
results highlight the benefits of its global operations. The group's
concentration on faster growing markets helped it to gain market share and
counterbalance missing revenues from sold businesses as well as margin
compression in a low interest rate environment.
Fitch believes that the group's profitability will rely on volume growth, cost
containment and moderate loan impairment charges over the next 12-18 months.
Further restructuring in the US and Europe and the accelerated wind-down of its
considerable legacy assets (about 14% of total risk weighted assets at end-March
2013) will continue to dent profit but this should ultimately lead to a more
robust performance. Competition, sizeable holdings of liquid assets and
reinvestments at lower interest rates will remain headwinds.
Financial market-related revenues held up well on solid equity performance in
Hong Kong and other parts of Asia-Pacific against lower balance sheet management
gains. Contributions from areas which Fitch believes to be less volatile such as
foreign exchange, securities and transaction services and payment and cash
management activities, however, declined to 32% (2012: 40%).
Fitch expects HSBC to continuously draw strength from its operations in Hong
Kong experiencing strong momentum in financing cross-border trade with China and
steady growth in domestic mortgage loans. Hong Kong and the rest of Asia-Pacific
contributed 65% to Q113 pre-tax profit. The group's European activities
rebounded on significantly reduced customer redress provisions, adding 21%,
following two consecutive quarters of losses.
HSBC's US operations should improve in 2013 following the anticipated sale of up
to USD2.7bn defaulted property loans and the restructuring of the remaining
commercial banking operations in HSBC Bank USA. Loans in arrears for more than
60 days in HSBC Finance's legacy consumer and mortgage loan portfolio remain
elevated at 18.6% at end-March 2013 (2012: 19.4%) and the entity continues to
run-off these assets through sales and managed charge-offs. HSBC remains exposed
to litigation risk but Fitch does not expect a re-emergence of the corporate
governance issues settled in 2012. Fitch expects a more normalised earnings
profile in 2014-2015, notwithstanding that compliance with the deferred
prosecution agreement will continue to require management attention and capital
and drive up costs.
HSBC's common equity Tier 1 ratio would be 9.7% at end-March 2013 (2012: 9%) if
Basel 3 was already implemented without taking any mitigating actions. The
improvement largely reflects retained earnings from the completed sale of
Chinese insurer Ping An and a smaller stake in Industrial Bank. Fitch
views this level as acceptable, taking into account a potential increase by the bank of
another 40bps to mitigate capital deductions for individually immaterial
investments. Fitch's core capital relative Basel 3 risk weighted assets was
about 12% at end-March 2013.