HSBC CEO Noel Quinn Braces For Tough Times After A Strong 2023

Noel Quinn, chief executive officer of HSBC Holdings Plc, during the Bloomberg Transition Finance Action Forum in New York, U.S.

(Bloomberg) -- At a recent retreat in southeast England for his top executives, HSBC Holdings Plc boss Noel Quinn painted a bullish picture for the year just gone as the lender benefited from rising interest rates.

With Europe's largest bank — which makes most of its profit in Asia — expected to report strong earnings for 2023 this week, Quinn appeared at ease in his role at the gathering late last year in Windsor. He signaled he was keen to steer the lender in the medium term, people familiar with the matter said.

But he also warned his lieutenants of tougher times ahead, they said, asking not to be identified discussing internal matters.

After riding the tide of rising interest rates over the past 18 months like many of its peers, HSBC is bracing for headwinds in 2024. While the peaking of the cycle implies an end to rates-driven earnings growth, the troubles in its key markets of China and Hong Kong point to serious challenges. US-China tensions over trade or Taiwan could also some day worsen — potentially undermining firms that that have spent decades building their businesses there.

“A bank can only be as strong or weak as their customers and the economy in which they operate,” said Mark Williams, a master lecturer in the Finance Department at Boston University. Doubling down on China at a time of growing crisis and a faltering economy puts HSBC “in a vulnerable earnings position for at least the next year,” he said.

A representative for HSBC, which is scheduled to announce its earnings on Feb. 21, declined to comment.

For 2023, analysts tracked by Bloomberg estimate HSBC will report net revenue of about $65.5 billion, up 27% from 2022, and net interest income of $37.4 billion.

HSBC is expected to unveil roughly $2 billion in share buybacks, according to analysts at UBS Group AG, following $7 billion in stock repurchases it announced last year.

The analysts are also anticipating an update on the sale of HSBC's Canadian business and potentially a special dividend in the second quarter of this year, according to a note to clients on Feb. 12. The Canadian government approved Royal Bank of Canada's $10 billion deal to acquire HSBC's Canadian operations in December.

China Focus

HSBC's operations in China and Hong Kong will be most in focus. Specifically, its exposure to commercial real estate in the world's second-biggest economy, as China Evergrande Group — once the country's biggest developer — prepares for liquidation, marking the largest collapse in the country's property meltdown.

Though HSBC has reined in its exposure to the China real estate sector, investors will be looking for more details about the impact on the lender.

The slowly unfolding property crisis has largely dragged down China's economic growth as policymakers struggle to revive domestic demand and consumer confidence. Economists have predicted deflation pressure continuing for at least another six months.

But some are optimistic of a China rebound. Nicolas Moreau, CEO of HSBC Asset Management, said at the Asia Financial Forum in Hong Kong last month that China is an “area where we should see growth coming back as the real estate crisis is going through its motion.”

A potential recovery may depend on how quickly and strongly President Xi Jinping's government responds to intense pressure for more aggressive stimulus measures to help stem a market rout that wiped out about $5 trillion in market value of Chinese stocks from a 2021 peak.

HSBC investors will be closely watching for signs of such moves as well.

--With assistance from Denise Wee, Leonard Kehnscherper and Manuel Baigorri.

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