While consensus estimates had expected the bank to post around $2.1bn in earnings for the quarter, the firm reported a pre-tax loss of $0.9, driven largely by a 63% year-on-year increase in loan impairment charges to $1.6bn and a 32% increase in the bank levy to $1.5bn.
For the year loan impairment charges rose 17% to $3.7bn.
One of the notable drivers of the increase in non-performing loans was the oil and gas sector. While the bank was at pains to point out that at $29bn, its overall drawn risk exposure to oil and gas represents only 2% of the total number. It added that at $600,000 impairment allowances against the oil and gas portfolio represents only 2% of that book and the number of loans that are past due but not impaired is insignificant.
Russ Mould, investment director at AJ Bell said that while the overall numbers had been disappointing and the market is likely to be nervous about the prospects of further impairments in 2016.
He said: “Some comfort can be drawn from an increase in the full-year dividend to $0.51 from $0.50 – enough for a yield in excess of 7% – but investors will be concerned by the unexpected fourth-quarter loss, 5% increase in full-year operating costs and $500 million of impairments taken against loans to oil firms.
For Investec, however, the key issue for the bank remains its lacklustre topline. For the final quarter HSBC reported an 8% fall in underlying revenues to $12.9bn, while for the full year revenues fell from $61.2bn in 2014, to $59.8bn last year.
In a note out following the release of the results, Investec pointed out that, while the firm’s cost performance was reasonable, “given a demonstrably weaker revenue outlook, we certainly hope for fresh cost reduction initiatives to go well beyond existing targets, without which RoE>10% is likely to remain elusive.”
Within the firm’s retail banking and wealth management unit, pre-tax profit grew 26% for the full year to $4.9bn.
Seismic shifts
Chairman, Douglas Flint called the financial performance of the group “broadly satisfactory, given the what he said were the “seismic shifts in global economic conditions, most notably the continuation of a sharp decline in commodity and oil prices, in part attributable to growing concerns over China’s slowing economic growth.”
But, he added, while the current market conditions were concentrating attention on the risks that exist within the global economy, “China’s slower economic growth will undoubtedly contribute to a bumpier financial environment, but it is still expected to be the largest contributor to global growth as its economy transitions to higher added value manufacturing and services and becomes more consumer driven.
“This transition is driving our focus on the Pearl River Delta as a priority growth opportunity given its concentration of high tech, research focused and digital businesses.”
Shares in the bank were down 2.8% in morning trade.
