HSBC Reports $3 Billion Charge on Chinese Bank Stake, Shares Plummet

This development occurred despite Quinn's previous assertion as recently as October that he believed China's real estate crisis had reached its nadir.

HSBC Holdings (HSBA.L) unveiled a startling $3 billion charge on its stake in a Chinese bank amidst escalating bad loans in the nation, causing a sharp decline in the British bank’s shares and overshadowing its historic annual profit.

Shares of HSBC tumbled by as much as 8% in London, marking their most significant single-day plummet since the onset of the COVID-19 pandemic in March 2020.

The $3 billion impairment on its stake in China’s Bank of Communications (BoCom) is the largest seen so far by a foreign lender, reflecting the deepening real estate crisis and sluggish economic resurgence in the country.

CEO Noel Quinn informed reporters that the write-down hadn’t stemmed from discussions with regulators but rather stemmed from accounting regulations triggering a reassessment of HSBC’s 19% stake in BoCom.

The bank’s latest annual report highlighted that “recent macroeconomic, policy, and industry-wide factors” had led to a broader spectrum of valuations for HSBC’s BoCom stake compared to previous assessments.

HSBC noted that BoCom’s anticipated earnings growth lagged behind its recent actual growth, contributing to a decline in the stake’s “Value in Use” to $21 billion as of December 31, 2023, from nearly $24 billion at the close of 2022.

This development occurred despite Quinn’s previous assertion as recently as October that he believed China’s real estate crisis had reached its nadir.

Quinn remarked on Tuesday that he observed a “progressive and gradual recovery,” albeit acknowledging that “it would take a few years for the market to work its way through the current challenges.”

The nosedive in share price transpired notwithstanding the bank’s announcement of a new $2 billion buyback, an annual dividend of $0.61 per share, and plans to issue a special dividend of $0.21 per share post the completion of its Canada business sale.

The adverse market response, juxtaposed with the record profit and substantial payouts, underscores the predicament faced by Asia-focused HSBC in aligning with investors’ lofty expectations amidst the backdrop of China’s slower-than-anticipated economic rebound.

The bank’s pretax profit for 2023 surged by 78% to $30.3 billion.

However, it fell short of the consensus estimate of $34.1 billion primarily due to the unforeseen writedown in China.

HSBC’s costs also escalated by 6% in 2023, surpassing projections, attributed to higher-than-expected bank levies in the U.S. and Britain.

It anticipated a further 5% increase in costs in 2024, grappling with inflation while bolstering its business investments.