HSBC Holdings plc (HSBC) is slated to report third-quarter 2014 results on Monday, Nov 3.
In the first half of 2014, this foreign bank delivered disappointing earnings, which fell 7% year-over-year, mainly owing to a decrease in revenues. However, this was partially offset by lower operating expenses.
Will HSBC be able to reverse the trend this time or will it again succumb to the tough industry backdrop? Let's see what factors might have influenced the earnings.
Factors Influencing the Results
Streamlining businesses in order to withstand the current tough operating environment remained the primary trend among the non-U.S. banks, with HSBC being one of them. The company’s strategy to focus on its core operations while divesting or closing less profitable ones, continued to be the chief cost-controlling factor. Operating expenses, in our opinion, should show a downward trend this time too.
However, the persistent low interest rate environment during the quarter led the central banks of most countries to prioritize growth over inflation control. Hence, subdued interest income growth should dampen HSBC’s top line.
Moreover, a slump in trading income is expected to hamper top-line improvement with continued low level of client activity in the third quarter as well. Loan growth is also expected to remain muted, which in turn, will adversely impact HSBC’s revenues.
At the same time, despite settling a few litigations in the third quarter, HSBC has been embroiled in many other lawsuits and investigations. Hence, the company may take additional reserve for legal expenses, which will hurt the bottom line to some extent.
HSBC currently carries a Zacks Rank #2 (Buy).
Other foreign banks that are expected to release results in the coming days include ItauUnibanco Holding S.A. (ITUB), Royal Bank of Canada (RY) and The Toronto-Dominion Bank (TD). ItauUnibanco will report third-quarter results on Nov 3, while Royal Bank of Canada and Toronto-Dominion are expected to announce fourth-quarter fiscal 2014 (ended Nov 30) results on Dec 3 and Dec 4, respectively.
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