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Why HSBC Shares Are Trading Higher In Tuesday's Pre-Market Session

Why HSBC Shares Are Trading Higher In Tuesday's Pre-Market Session

HSBC Holdings Plc (NYSE: HSBC) shares surged in the pre-market session Tuesday as the bank beat analyst estimates for the third-quarter earnings.

Q3 revenue dropped to $11.9 billion marking an 11% decrease year-over-year. Cumulative revenues for the first three quarters were 9.5% lower compared to the same period in 2019.

Pre-tax profits of $3.1 billion exceeded analyst estimates of $2.07 billion, according to CNBC.

Diluted earnings per share for Q3 fell 50% YoY to $0.07 but increased 7 times sequentially. According to Reuters, analysts estimated the EPS range between $0.06 and $0.12.   

Key Highlights for Q3 2020: Interest rate reductions for deposits on a global scale was a key factor in the revenue decline. This was partially offset by a favorable environment for life insurance and adjustments for credit and funding valuations.

The reported net interest margin of 1.2% was 36 basis lower than the third quarter last year, primarily due to the fall in interest rates.

Common Equity Tier 1 Capital (CET1) ratio climbed 0.6% sequentially to 15.6%, denoting a decrease in risk-weighted assets (based on constant currency), a $0.9 billion capital generation from regulatory profits, and differences in foreign currency valuation.

The liquidity coverage ratio for the quarter was 146.6% compared to 147.8% in the previous quarter.

The bank reported $857 billion in total RWAs on Sept. 30, a $2.4 billion increase compared to Q2.

In the investor presentation, the bank disclosed RWA saves of $41 billion, along with a $0.6 billion year-to-date cost savings.

Outlook for FY 2020: HSBC is weighing the business impact of geopolitical risks and uncertainty surrounding the Sino-U.S. tensions and the United Kingdom's exit from the European Union.

The management anticipates setbacks to the net income in Q4 and expects it to stabilize moving into 2021.

Expected Credit Losses and other credit impairment charges (ECL) would stay in line with the year-to-date average quarterly charge. The bank also anticipates that it would exceed its $100 billion 2022 RWA reduction targets.

Based on the 2021 economic outlook, the bank may declare a conservative dividend in February 2021, at the time of the full-year earnings release.

Price Action: HSBC stock dropped 0.72% to close at $20.73 on Monday.

Photo by Can Pack Swire on Flickr


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