HSBC Holdings plc HSBC is slated to report second-quarter 2015 results on Aug 3.
In the preceding quarter, this foreign bank reported a marginal decline in earnings. Increase in revenues, lower loan impairment charges and absence of any substantial additional legal provision supported the bottom line. However, a persistent rise in operating expenses remained a major concern, raising doubts over the success of the bank’s cost-saving initiatives.
Will HSBC succumb to the pressure of legal and regulatory issues this time? Or will the company be able to overcome the challenges? Let's see what factors might have affected the earnings.
Factors Influencing Q2 Results
HSBC continues to focus on its core operations, while divesting or closing less profitable ones, with an aim to control costs and improve efficiency. Though these streamlining initiatives will help the bank to recover from the after-effects of a string of high-profile regulatory issues, the impact of these will be seen in the long run.
This implies that operating expenses will likely remain elevated on the back of increased risk, compliance and related costs in the upcoming release. Further, if the company’s ongoing legal and other regulatory issues compel it to make additional provision, then expenses are bound to surge.
Moreover, the persistent low interest rate environment during the quarter forced the central banks of most countries to prioritize growth over inflation control. As a result, subdued interest income growth is anticipated to hamper HSBC’s top-line growth in this quarter as well.
Nevertheless, loan impairment charges and other credit risk provisions are expected to trend lower, driven by changes made by HSBC in its loan portfolio since 2011. This is anticipated to support the company’s bottom line to some extent.
HSBC currently carries a Zacks Rank #4 (Sell).
Among other foreign banks, Itaú Unibanco Holding S.A. ITUB is slated to report second-quarter results on Aug 5. Moreover, Royal Bank of Canada RY and The Toronto-Dominion Bank TD are expected to report fiscal third-quarter (ended Jul 31) results on Aug 26 and Aug 27, respectively.
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