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HSBC reports "tough conditions"

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HSBC has reported an 18 percent drop in adjusted profits, in challenging conditions for the bank.

Adjusted profits of $5.4bn were 18 percent lower than the year before, but compared favourably to a consensus forecast of $4.3bn. The shares rallied almost 3 percent in early trading. Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘It’s tough out there for banks, and HSBC is no exception, particularly seeing as it is increasingly focusing its business on Asia, which is a weak market right now. However in common with several other UK banking stocks, things weren’t quite as bad at HSBC as investors had feared.

One of the headwinds HSBC has been battling is a deterioration of its loan book, with impairment costs doubling from last year, led by problems with borrowers in the energy and mining sectors. Nonetheless HSBC declared an unchanged dividend of 10 cents, which was twice covered by earnings over the quarter. Investors are clearly concerned on this front though, because a 7.5 percent yield on the stock suggests the market is sceptical the dividend can be maintained.

It is still very much work in progress at HSBC as the bank is engaged in a major repositioning, which will see it become much more focused upon its Asian roots and far less exposed to volatile investment banking activities. While currently problematic, the focus on Asia could prove rewarding in the long term, if HSBC executes its strategy well. HSBC is still the biggest single stock in the UK stock market, so UK investors and pension savers will be hoping the bank gets it right, because it makes up such a large part of their portfolios.’

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