LONDON — British bank Barclays on Thursday reported £1.6 billion ($2 billion) net profit attributable to shareholders for the third quarter, beating expectations.
The result compared with the £1.17 billion net profit forecast in an LSEG poll of analysts and was 23% higher than the same period in 2023.
Revenue for the period came in at £6.5 billion, slightly ahead of a forecast of £6.39 billion.
Barclays shares opened 2% higher in London.
The lender’s return on tangible equity rose to 12.3% from 9.9% in the second quarter, as its CET1 ratio — a measure of solvency — rose to 13.8% from 13.6%.
Earlier this year, Barclays announced a strategic overhaul in an effort to cut costs, boost shareholder returns and stabilize its long-term financial performance, placing more focus on domestic lending while reducing costs at its more volatile investment banking unit. That strategy has included the acquisition of U.K. retail banking business Tesco Bank.
In the second quarter, Barclays net profit fell slightly year-on-year amid lower income at its U.K. consumer bank and corporate bank, as net profit jumped 10% at its investment bank.
Those gaps closed in the third quarter, with domestic bank income up 4%, with the lender raising its annual forecast for U.K. retail net interest income to £6.5 billion from £6.3 billion. Corporate bank income was 1% higher due to a rise in average deposit balances, while investment banking income gained 6%.
Amid declines, income at Barclays’ private U.S. consumer bank dipped 2% year-on-year as its wealth management unit fell 3%.
Barclays CEO C. S. Venkatakrishnan told CNBC on Thursday the results showed the bank was on track to meet the targets it had set out in February.
“We are guiding upwards in our net interest income, and we’ve had two continuous quarters of NII expansion in our business in the U.K. So we’re guiding up, both for the U.K. business and for the bank as a whole, and then we see costs very much under control.”
The bank now sees group NII of above £11 billion for full-year 2024, from a previous outlook of £11 billion.
Barclays shares have soared 55% in the year to date after dipping in 2023.
Several banks have announced plans to restructure, streamline operations and cut costs as they face a potential weakening of net interest margins as interest rates fall. HSBC earlier this week said it would consolidate its operations into four business units.
“What I would say on interest rates is, Barclays has had a very disciplined approach to interest rate management, and so we’ve got this thing called the structural hedge, which is a way of smoothing out the effects of interest rates on our income, and that’s part of what is causing our NII expansion over the last couple of quarters. So we are pretty well protected against changes in interest rates in the near term,” Venkatakrishnan said.
Deutsche Bank kicked off the third-quarter reporting season on Wednesday, posting higher-than-expected net profit as revenue at both its investment bank and asset management divisions jumped 11% year-on-year.
Aaron P | Bauer-Griffin | GC Images | Getty Images
HSBC on Tuesday named veteran insider Pam Kaur as its first female finance chief and announced a consolidation of the bank into four business units.
Kaur is set to assume her post on Jan. 1, according to regulatory filings with the Hong Kong bourse, taking over from interim Chief Financial Officer Jon Bingham. This is the second heavyweight leadership shakeup for HSBC in recent months, after former finance boss Georges Elhedery was named CEO of the group back in July.
Despite bold statements, a lot of companies are failing to produce tangible results, according to Edward J Achtner, the head of generative AI for U.K. banking giant HSBC.
“Candidly, there’s a lot of success theater out there,” Achtner said on a panel at the CogX Global Leadership Summit alongside Ranil Boteju — a fellow AI leader at rival British bank Lloyds Banking Group — and Nathalie Oestmann, head of NV Ltd, an advisory firm for venture capital funds.
“We have to be very clinical in terms of what we choose to do, and where we choose to do it,” Achtner told attendees of the event, held at the Royal Albert Hall in London earlier this week.
Achtner outlined how the 150-year-old lending institution has embraced artificial intelligence since ChatGPT — the popular AI chatbot from Microsoft-backed startup OpenAI — burst onto the scene in November 2022.
The HSBC AI leader said that the bank has more than 550 use cases across its business lines and functions linked to AI — ranging from fighting money laundering and fraud using machine learning tools to supporting knowledge workers with newer generative AI systems.
One example he gave was a partnership that HSBC has in place with internet search titan Google on the use of AI technology anti-money laundering and fraud mitigation. That tie-up has been in place for several years, he said. The bank has also dipped its toes deeper into genAI tech much more recently.
“When it comes to generative artificial intelligence, we do need to clearly separate that” from other types of AI, Achtner said. “We do approach the underlying risk with respect to generative very differently because, while it represents incredible potential opportunity and productivity gains, it also represents a different type of risk.”
Achtner’s comments come as other figures in the financial services sector — particularly leaders at startup firms — have made bold statements about the level of overall efficiency gains and cost reductions they are seeing as a result of investments in AI.
Buy now, pay later firm Klarna says it has been taking advantage of AI to make up for loss of productivity resulting from declines in its workforce as employees move on from the company.
It is implementing a company-wide hiring freeze and has slashed overall employee headcount down to 3,800 from 5,000 — a roughly 24% workforce reduction — with the help of AI, CEO Sebastian Siemiatkowski said in August. He is looking to further reduce Klarna’s headcount to 2,000 staff members — without specifying a time for this target.
Klarna’s boss said the firm was lowering its overall headcount against the backdrop of AI’s potential to have “a dramatic impact” on jobs and society.
“I think politicians already today should consider whether there are other alternatives of how they could support people that may be effective,” he said at the time in an interview with the BBC. Siemiatkowski said it was “too simplistic” to say AI’s disruptive effects would be offset by the creation of new jobs thanks to AI.
Oestmann of NV Ltd, a London-based firm that offers advisory services for the C-suite of venture capital and private equity firms, directly touched on Klarna’s actions, saying headlines around such AI-driven workforce reductions are “not helpful.”
Klarna, she suggested, likely saw that AI “makes them a more valuable company” and was consequently incorporating the technology as part of plans to reduce its workforce anyway.
The result Klarna is seeing from AI “are very real,” a Klarna spokesperson told CNBC. “We publicize these results because we want to be honest and transparent about the impact genAI is having in the real world in companies today,” the spokesperson added.
“At the end of the day,” Oestmann added, as long as people are “trained appropriately” and banks and other financial services firm can “reinvent” themselves in the new AI era, “it will just help us to evolve.” She advised financial firms to pursue “continuous learning in everything that you do.”
“Make sure you are trying these tools out, make sure you are making this part of your everyday, make sure you are curious,” she added.
Boteju, chief data and analytics officer at Lloyds, pointed to three main use cases that the lender sees with respect to AI: automating back office functions like coding and engineering documentation, “human-in-the loop” uses like prompts for sales staff, and AI-generated responses to client queries.
Boteju stressed that Lloyds is “proceeding with caution” when it comes to exposing the bank’s customers to generative AI tools. “We want to get our guardrails in place before we actually start to scale those,” he added.
“Banks in particular have been using AI and machine learning for probably about 15 or 20 years,” Boteju said, signaling that machine learning, intelligent automation and chatbots are things traditional lenders have been “doing for a while.”
Generative AI, on the other hand, is a more nascent technology, according to the Lloyds exec. The bank is increasingly thinking about how to scale that technology — but by “using the current frameworks and infrastructure we’ve got,” rather than by moving the needle significantly.
Boteju and Achtner’s comments tally with what other AI leaders of financial services have said previously. Speaking with CNBC last week, Bahadir Yilmaz, chief analytics officer of ING, said that AI is unlikely to be as disruptive as firms like Klarna are suggesting with their public messaging.
“We see the same potential that they’re seeing,” Yilmaz said in an interview in London. “It’s just the tone of communication is a bit different.” He added that ING is primarily using AI in its global contact centers and internally for software engineering.
“We don’t need to be seen as an AI-driven bank,” Yilmaz said, adding that, with many processes lenders won’t even need AI to solve certain problems. “It’s a really powerful tool. It’s very disruptive. But we don’t necessarily have to say we are putting it as a sauce on all the food.”
Johan Tjarnberg, CEO of Swedish online payments firm Trustly, told CNBC earlier this week that AI “will actually be one of the biggest technology levers in payments.”But even so, he noted that the firm is focusing more of the “basics of AI” than on transformative changes like AI-led customer service.
One area where Trustly is looking to improve customer experience with AI is subscriptions. The startup is working on an “intelligent charging mechanism” that would aim to figure out the best time for a bank to take payment from a subscription platform user, based on their historical financial activity.
Tjarnberg added that Trustly is seeing closer to 5-10% improved efficiency as a result of implementing AI within its organization.
A row of traditional houses on a street in London’s Muswell Hill suburb, located to the north of London, with views of the Canary Wharf on the horizon.
Georgeclerk | Istock | Getty Images
LONDON — Britain’s major high street lenders have begun slashing their mortgage rates in a sign that financial pressure on households may be easing after the Bank of England cut interest rates for the first time in over four years.
HSBC, Santander and Nationwide are among the lenders to have trimmed borrowing costs following the BOE’s decision on Thursday to lower its Bank Rate to 5% from its 16-year high of 5.25%.
Homeowners on tracker mortgages, which follow the Bank’s base rate, will be the first to benefit from the savings. Barclays, Santander, Metro Bank, Lloyds, Halifax, Nationwide and HSBC all cut repayments costs by 25 basis points shortly after the BOE’s announcement.
Those on standard variable rates, which typically take effect once a borrower’s tracker or fixed rate deal ends, will also see savings. From September, Santander will trim its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0%, and Halifax from 8.74% to 8.49%.
Given their more volatile nature, tracker and SVR mortgages remain a relatively niche part of the U.K. mortgage market. Of the 8.39 million outstanding residential mortgages as of Dec. 2023, 643,000 were trackers and 624,000 were SVRs, according to trade body UK Finance.
However, analysts suggest it may not be long until reductions feed through to the 6.93 million households on fixed rate mortgages. Indeed, last week Nationwide became the first lender since April to offer a sub 4% deal on its five-year fixed rate in anticipation of the BOE’s monetary policy shift.
“[Borrowers can] expect to see further pricing improvements in fixed rates, as lenders continue to fight hard to gain a share in a very competitive market,” David Hollingworth, associate director at L&C Mortgages, said via email.
Laura Suter, director of personal finance at AJ Bell, agreed that other lenders “will follow suit” as Thursday’s decision “fires the starting gun” for the BOE’s rate cutting cycle.
While initial savings for homeowners are set to be minimal — averaging around £28 per month for those on tracker rates, according to Hargreaves Lansdown — the savings are expected to boost confidence that Britain is emerging from its cost of living crisis, with knock on effects for the U.K. housing market.
“It could persuade more buyers that this is the right kind of market to take a leap of faith and buy,” Sarah Coles, head of personal finance Hargreaves Lansdown, said.
Savills’ director of research, Emily Williams, said an increase in buyers should lead to an uptick in market activity in the autumn, with price growth expected to total +2.5% this year.
Still, with the BOE voting to cut rates by a slim 5-4 majority, the future path for rate cuts remains uncertain, and the central bank has warned it will move ahead with caution. As such, some analysts have warned it will be some time yet before more significant savings are fed through to homeowners.
“The split vote decision among rate setters suggests this was a rather hawkish rate cut, so this policy loosening is unlikely to herald the start of a major interest rate-cutting cycle,” Suren Thiru, economics directors at ICAEW, said via email.
Elhedery’s appointment as CEO comes less than two years after he was promoted to chief financial officer in January 2023. He will continue to serve as group CFO during the transition period, the company said in a statement.
“I am deeply honoured by the trust placed in me to lead this great institution into the future. Working together with our talented team, I look forward to delivering exceptional value to our clients and investors by driving strong performance on a sustainable growth trajectory,” Elhedery said.
HSBC Group Chairman Mark Tucker called Elhedery “an exceptional leader and banker who cares passionately about the Bank, our customers, and our people.”
Elhedery has worked across multiple regions during his career, spanning Asia, Europe and the Middle East. The bank said “he has demonstrated his strategic insight and vision, and deep international perspectives,” adding that the Board considered him an “outstanding candidate.”
The bank has not yet announced a successor to Elhedery as CFO.
Quinn will work closely with Elhedery to ensure a “smooth and order handover of responsibilities,” HSBC said. Quinn will remain available to the company while on gardening leave until his 12-month notice period ends on April 30, 2025.
Quinn has led the bank through challenges such as the Covid-19 pandemic and trade tensions between China and the West. He has been with the bank for 37 years, and was appointed as interim CEO in 2019.
Quinn said in April, “After an intense five years, it is now the right time for me to get a better balance between my personal and business life. I intend to pursue a portfolio career going forward.”
The bank’s Hong Kong shares were 0.15% lower Wednesday.
LONDON — French stocks moved higher on Monday as markets reacted to a surprise win for the left in the country’s parliamentary election.
The CAC 40 erased earlier losses to rise 0.5% by 10:00 a.m. London time (5 a.m. ET). The euro was flat against the dollar, and trading in bond markets was also relatively muted.
The U.K.’s FTSE 100 was steady, while Germany’s DAX was 0.43% higher and the FTSE MIB was up around 1%. The pan-European STOXX 600 was 0.3% in the green.
France’s left-wing New Popular Front won the largest number of seats in this weekend’s parliamentary elections, scuppering an expected surge for the far-right. However, the coalition failed to secure an absolute majority, early data showed, leaving markets digesting the possibility of a hung parliament.
François Digard, head of French equity research at Kepler Cheuvreux, said a hung parliament was what the market was expecting.
“You have a hung parliament as expected so last week, the market has played this out … It was just expected to be more right-wing and at the end it is left-wing,” he told CNBC on Monday.
Deutsche Bank strategists added that markets will be suspicious of the New Popular Front’s “fiscally aggressive” spending and taxation plans.
“Last night the far-left were already talking about wealth taxes and increases on taxes on corporates which won’t be market-friendly. However trying to build a government that has any kind of stability looks a very high bar this morning. Political paralysis for the next 12 months seems the most likely outcome,” they added.
It comes after a general election in Britain last week, in which the opposition Labour Party win a landslide victory, unseating the Conservatives after 14 years.
In corporate news, soft drinks maker Britvic has agreed a takeover bid of £3.3 billion ($4.2 billion) from Carlsberg, at an offer of 1,290 pence per Britvic share. This was an improved bid from Carlsberg which first offered 1,200 pence per share but was rejected.
There are no major corporate earnings due out on Monday. It’s also quiet on the data front, with just German trade data due.
In Asia-Pacific, stocks were mixed Monday. In the United States, futures ticked lower as investors looked ahead to inflation data for hints on this year’s market rally and the next steps by the Federal Reserve. The June consumer price index is due Thursday, with producer price index data due Friday.
Customers use automated teller machines (ATM) at an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb 16, 2019.
Anthony Kwan | Bloomberg | Getty Images
Shares of HSBC Holdings fell over 3% in Hong Kong on Friday after reports that its top shareholder Ping An Insurance might be looking to cut its stake in the British bank.
Despite the fall, HSBC’s share price is still at its highest since August 2018, trading at about 68 Hong Kong dollars per share.
Citing people familiar with the matter, Bloomberg reported the Chinese insurer is looking at possibly reducing its stake in the bank further “as it seeks to reduce its $13.3 billion position in Europe’s largest lender.”
There are several options including “further share sales, similar to the $50 million sale it disclosed last week.”
The sale marked the first disposal of shares from Ping An since it backed a 2023 shareholder motion that sought to spin off its Asia business and establish fixed dividends. That motion was eventually defeated.
“A sovereign wealth fund or ultra-rich investor in the Middle East taking a sizable stake is another possibility,” Bloomberg said, citing unnamed sources.
HSBC on Tuesday announced the surprise departure of Group Chief Executive Officer Noel Quinn after nearly five years at the helm.
In a statement released by the bank, Quinn said:
“It has been a privilege to lead HSBC. I never imagined when I started 37 years ago that I would have the honour of becoming Group Chief Executive of this great bank. I am proud of what we have achieved, and it has only been possible because of the talent, dedication, and commitment of the people at HSBC. I want to thank them wholeheartedly and wish them continued success for the next stage of the journey. After an intense five years, it is now the right time for me to get a better balance between my personal and business life. I intend to pursue a portfolio career going forward.”
First appointed as interim CEO in August 2019, Quinn took permanent leadership of HSBC in March 2020. He led the bank through challenges including the Covid-19 pandemic and deteriorating relations between China and the West.
The bank’s London-listed shares have risen over 30% since he became CEO.
On Tuesday, shares of HSBC — which also announced first-quarter earnings that beat expectations — were 3.6% higher at 11:04 a.m. London time.
The bank’s Chairman Mark Tucker paid tribute to Quinn’s leadership. “He has driven both our transformation strategy and created a simpler, more focused business that delivers higher returns. The bank is in a strong position as it enters the next phase of development and growth,” Tucker said in a statement.
HSBC said the hunt for its next CEO had begun, and that Quinn would remain in his post during this process.
The Hong Kong observation wheel and the HSBC building in Victoria Harbour in Hong Kong.
Ucg | Universal Images Group | Getty Images
HSBC is “very positive” about the mid- to long-term outlook for the Chinese economy despite current headwinds, the British bank’s chief financial officer told CNBC.
Growth in China has been weighed down over the past year by a slump in the country’s traditional economic pillars of real estate, infrastructure and exports. This prompted Beijing to ramp up its efforts to bolster manufacturing and domestic tech in a bid to modernize its economy and remain globally competitive.
Speaking to CNBC’s Karen Tso on Wednesday, HSBC CFO Georges Elhedery said the lender — which is headquartered in London but does a lot of its business in Hong Kong and across the Asia-Pacific — was confident that the world’s second-largest economy would overcome its short-term headwinds.
“We’re looking at major economic transition, which is taking place, which gives us very strong grounds to be very positive about the medium- and long-term outlook,” Elhedery said.
He suggested that China’s economic maturity has reached such a stage that now is the “right time to transition into what more mature economies are.”
Elhedery characterized this maturity as being more heavily reliant on consumers, the services industry and high-value and sustainability-driven products, such as electric vehicles and batteries, aspirations he said were evidenced by the Chinese government’s recent massive push toward these sectors.
“That transition will mean that China will avoid falling in this middle income trap and be able to continue the growth pattern,” he added.
“Some of the Western economies have gone through those transitions in the past, [and] China is going through a transition today. That gives us a lot of positive outlook for the medium- to long-term for China.”
The more immediate economic challenges may last “a few quarters to a couple of years,” Elhedery said, but expressed confidence that China will be in a better position for the long run, as the country puts itself on a “materially better forward-looking track.”
HSBC missed its full-year 2023 pretax profit forecasts on the back of a $3 billion write-down on its 19% stake in China’s Bank of Communications, while the lender cut its overall exposure to Chinese commercial real estate by $4.6 billion year on year.
Yet, Elhedery on Thursday insisted that most of the challenges related to the ailing Chinese property market were “behind us,” even as he said the sector is not “out of the woods” so far.
“We think the trough of that sector is behind us. We think in our case, our exposure and our ECL (expected credit losses) covers the bulk of the charges behind us, but that still means there will be lingering effects as the sector continues to adjust, and we may continue to see some impact but not to the tune that we’ve seen last year on our credit charges,” he said.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2024.
Brendan Mcdermid | Reuters
LONDON — Global dividend payouts to shareholders hit a record $1.66 trillion in 2023, according to a new report by British asset manager Janus Henderson.
The Global Dividend Index report, published Wednesday, said payouts rose by 5% year-on-year on an underlying basis, with the fourth quarter showing a 7.2% rise from the previous three months.
The underlying figure adjusts for the impact of exchange rates, one-off special dividends and technical factors related to dividend calendars, along with changes to the index.
The banking sector contributed almost half of the world’s total dividend growth, delivering record payouts as high interest rates boosted lenders’ margins, the report found.
Last year, major banks including JPMorgan Chase, Wells Fargo and Morgan Stanley announced plans to raise their quarterly dividends after clearing the Federal Reserve’s annual stress test, which dictates how much capital banks can return to shareholders.
“In addition, lingering post-pandemic catch-up effects meant payouts were fully restored, most notably at HSBC,” Janus Henderson’s report added.
“Emerging market banks made a particularly strong contribution to the increase, though those in China did not participate in the banking-sector’s dividend boom.”
However, the positive impact from banking dividends was “almost entirely offset by cuts from the mining sector,” according to Janus Henderson.
The report noted that large dividend cuts by some major companies such as BHP, Petrobras, Rio Tinto, Intel and AT&T diluted the global underlying growth rate for the year by two percentage points, masking significant broad-based growth in many parts of the world.
Customers use automated teller machines (ATM) at an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb 16, 2019.
Anthony Kwan | Bloomberg | Getty Images
HSBC‘s full-year 2023 pretax profit missed analysts’ estimates on Wednesday, hit by impairment costs linked to the lender’s stake in a Chinese bank, sinking its London-listed shares as much as 7%.
Europe’s largest bank by assets saw its pre-tax profit climb about 78% to a record $30.3 billion in 2023 from a year ago, according to its statement released Wednesday during the mid-day trading break in Hong Kong. That missed median estimates of $34.06 billion from analysts tracked by LSEG.
Chief Executive Noel Quinn also announced an additional share buyback of up to $2 billion to be completed ahead of the bank’s next quarterly earnings report. HSBC also said it would consider offering a special dividend of 21 cents per share in the first half of 2024 after it completes the sale of its Canada business.
With the highest full-year dividend per share since 2008 and three share buy-backs in 2023 totaling $7 billion, Quinn said the bank returned $19 billion to shareholders last year.
Quinn’s remuneration doubled to $10.6 million in 2023 from $5.6 million the year before, boosted in part by variable long-term incentives since his appointment in 2020.
HSBC suffered a “valuation adjustment” of $3 billion on its 19% stake in China’s Bank of Communications, Quinn said. In an interview with CNBC following the earnings release, he said this is “a technical accounting adjustment” and “not a reflection” on BoComm.
This write-down was among the items that plunged the bank’s fourth-quarter pretax profit by 80% to $1 billion from a year earlier.
HSBC’s Hong Kong shares reversed gains of about 1% after trading resumed, falling as much as 5%. The benchmark Hang Seng Index was up about 2%. Shares in London were down around 7% in early deals, set for their biggest one-day drop since 2020, according to Reuters.
HSBC shares
Here are the other highlights of the bank’s full year 2023 financial report card:
Revenue for 2023 increased by 30% to $66.1 billion, compared with the median LSEG forecast for about $66 billion.
Net interest margin, a measure of lending profitability, was 1.66% â compared with 1.48% in 2022.
Common equity tier 1 ratio â which measures the bank’s capital in relation to its assets â was 14.8%, compared with 14.2% in 2022.
Basic earnings per share was $1.15, compared with the median LSEG forecast for $1.28 in 2023 and 75 cents for 2022.
Dividend per ordinary share was 61 cents â the highest since 2008 â compared with 32 cents in 2022.
HSBC, which has a second home in Hong Kong, said it was focusing on the fastest growing parts of Asia, a continent where the bank makes most of its profits.
In an earnings briefing to investors and analysts, the bank said it has completed the sale of its businesses in France, Oman, Greece and New Zealand, and was in the process of exiting Russia, Canada, Mauritius and Armenia.
The bank flagged two key macroeconomic trends: declining interest rates as inflation ebbs â a development that could eat into its interest income; and a continued reconfiguration of global supply chains and trade.
“International expansion remains a core strategy for corporates and institutions seeking to develop and expand, especially the mid-market corporates that HSBC is very well-positioned to serve. Rather than de-globalizing, we are seeing the world re-globalize, as supply chains change and intraregional trade flows increase,” Quinn said in the earnings statement.
The bank is targeting a mid-teens return on tangible equity for 2024, which was about 14.5% last year.
HSBC said it will be focusing on an expansion of non-interest income revenue sources via its wealth and transaction banking business. It is expecting banking non interest income of at least $41 billion in financial year 2024.
HSBC said it’s cautious about the loan growth outlook for the first half of 2024 amid economic uncertainty, expecting a mid-single digit annual percentage growth over the medium to long term.
The HSBC Holdings Plc headquarters building in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Images
LONDON — Markets have entered a “new paradigm” as the global order fragments, while heightened recession risk means that “bonds are back,” according to HSBC Asset Management.
In its 2024 investment outlook, seen by CNBC, the British lender’s asset management division said that tight monetary and credit conditions have created a “problem of interest” for global economies, increasing the risk of an adverse growth shock next year that markets “may not be fully prepared for.”
HSBC Asset Management expects U.S. inflation to fall to the Federal Reserve’s 2% target in late 2024 or in early 2025, with the headline consumer price index figures of other major economies also set to drop to central banks’ targets over the course of next year.
The bank’s analysts expect the Fed to begin cutting rates in the second quarter of 2024 and to trim by more than the 100 basis points priced in by markets over the remainder of the year. They also anticipate that the European Central Bank will follow the Fed, and that the Bank of England will kickstart a cutting cycle but will lag behind its peers.
“Nevertheless, headwinds are beginning to build. We believe further disinflation is likely to come at the price of rising unemployment, while depleting consumer savings, tighter credit conditions, and weak labour market conditions could point to a possible recession in 2024,” Global Chief Strategist Joseph Little said in the report.
A new paradigm
The rapid tightening of monetary policy by central banks over the last two years, Little suggested, is leading global markets towards a “new paradigm” in which interest rates remain at around 3% and bond yields stick around 4%, driven by three major factors.
Firstly, a “multi-polar world” and an “increasingly fragmented global order” are leading to the “end of hyper-globalisation,” Little said. Secondly, fiscal policy will continue to be more active, fueled by shifting political priorities in the “age of populism,” environmental concerns and high levels of inequality. Thirdly, economic policy is increasingly geared towards climate change and the transition to net-zero carbon emissions.
“Against this backdrop, we anticipate greater supply side volatility, structurally higher inflation, and higher-for-longer interest rates,” Little said.
“Meanwhile, economic downturns are likely to become more frequent as higher inflation restricts the ability of central banks to stimulate economies.”
Over the next 12 to 18 months, HSBC AM expects investors to place greater scrutiny on corporate profits and the ongoing debate over the “neutral” rate of interest, along with a heightened focus on labor market and productivity trends.
‘Bonds are back’
Markets are now largely pricing a “soft landing” scenario, in which major central banks return inflation to target without tipping their respective economies into recession.
HSBC AM believes the increased risk of recession is being overlooked and is positioning for defensive growth alongside a prevailing view that “bonds are back.”
“A weaker global economy and slowing inflation are likely to present a supportive environment for government bonds and challenging conditions for equities,” Little said.
“Therefore, we see selective opportunities in parts of global fixed income, including the U.S. Treasury curve, parts of core European bond markets, investment grade credits, and securitised credits.”
HSBC AM is cautious on U.S. stocks, due to high earnings growth expectations for 2024 and a stretched market multiple — the level at which shares trade versus their expected average earnings — relative to government bond markets. The report analysis sees European stocks as relatively cheap on a global basis, which limits downside unless a recession materializes.
“Japanese stocks may be an outperformer among developed markets, in our view, due to attractive valuations, the end of unconventional monetary policy, and a high-pressure economy in Japan,” Little said.
He added that idiosyncratic trends in emerging markets also warrant a selective approach rooted in corporate fundamentals, earnings visibility and risk-adjusted rewards. If the Fed cuts rates significantly in the second half of 2024 as the market expects, Indian and Mexican bonds and Chinese A-share stocks — domestic shares that are dominated in yuan and traded on the Shanghai and Shenzhen exchanges — would be some of HSBC AM’s top emerging market picks.
India’s post-pandemic rebound and rapidly growing markets and Japan’s continued exit from unconventional monetary policy render them as attractive sources of diversification, Little suggested, while Chinese growth is widely projected at around 5% this year and 4.5% in 2024, but could also benefit from further fiscal policy support.
“Asian equities are in a stronger position in terms of growth and are likely to remain a relative bright spot in the global context,” Little said.
“Regional valuations are generally attractive, foreign investor positioning remains light, while stabilising earnings should be the key driver of returns next year.”
Asian credit should also enjoy a much better year as global rates peak, most regional economies perform well and Beijing offers an additional fiscal boost, he added.
BARCELONA, SPAIN – MARCH 01: A view of the MasterCard company logo on their stand during the Mobile World Congress on March 1, 2017 in Barcelona, Spain. (Photo by Joan Cros Garcia/Corbis via Getty Images)
SINGAPORE — There isn’t enough justification for the widespread use of central bank digital currencies right now, which makes broad adoption of such assets “difficult,” Ashok Venkateswaran, Mastercard‘s blockchain and digital assets lead for Asia-Pacific, told CNBC.
“The difficult part is adoption. So if you have CBDCs in your wallet, you should have the ability for you to spend it anywhere you want – very similar to cash today,” said Venkateswaran on the sidelines of Singapore FinTech Festival on Wednesday.
A retail CBDC, which is the digital form of fiat currency issued by a central bank, caters to individuals and businesses, facilitating everyday transactions. This is different from a wholesale CBDC which is used exclusively by central banks, commercial banks and other financial institutions to settle large-value interbank transactions.
The International Monetary Fund has said that CBDCs are “a safe and low-cost alternative” to cash, with approximately 60% of countries in the world exploring CBDCs. However, only 11 countries have adopted them, with an additional 53 in advanced planning stages and 46 researching the topic as of June, according to data from the Atlantic Council.
“But [building infrastructure to facilitate that] takes a lot of time and effort on a part of the country to do that. But a lot of the central banks nowadays have gotten very innovative because they are working very closely with private companies like ours, to create that ecosystem,” said the Asia-Pacific lead.
Even then, Venkateswaran said consumers are “so comfortable using today’s type of money” such as paper money and coins, that “there isn’t enough justification to have a CBDC.”
Mastercard, the second-largest card network in the U.S., said last week it has completed testing of its solution in the Hong Kong Monetary Authority’s e-HKD pilot program to simulate the use of a retail CBDC such as electronic Hong Kong dollars.
Hong Kong’s CBDC sandbox facilitates the trial of minting, distributing and spending of e-HKD within the program.
A total of 16 companies across the financial, payments and technology sectors including Mastercard participated in the pilot. Mastercard’s rival Visa also took part in the project alongside HSBC Bank and Hang Seng Bank, testing the viability of tokenized deposits in business-to-business payments.
Venkateswaran cited Singapore as an example where the case for retail CBDC is not compelling enough as the city-state has a “very efficient” payments system.
Last year, the IMF’s deputy managing director Bo Li named Singapore and Thailand as the countries in Asia which have made “quick progress” by connecting fast payment systems, therefore lowering transaction fees for cross-border payments.
“There isn’t a reason for a retail CBDC [in Singapore] but there is a case for a wholesale CBDC for interbank settlements,” said Venkateswaran.
During the pilot, the Monetary Authority of Singapore will collaborate with domestic banks to test the use of wholesale CBDCs to facilitate domestic payments, said the managing director of the Monetary Authority of Singapore, Ravi Menon.
It really depends on the need of the country or what problem they are trying to solve, said Mastercard’s Venkateswaran.
It won’t work “if you’re only trying to replace your existing domestic payment network,” he said.
“But if it’s a country where the domestic payment network is not as robust, it may make sense to have a CBDC.”
HSBC is the largest bank in Europe by total assets.
Nicolas Economou | Nurphoto | Getty Images
HSBC on Wednesday announced it will offer custody services for tokenized securities, making the British bank the latest major institution to embrace digital assets.
HSBC is using technology from Swiss crypto custody firm Metaco, which was recently acquired by blockchain startup Ripple, to store bonds and other securities.
In a press release, the bank said that the service would complement its HSBC Orion platform for issuing digital assets, as well as a recently-launched offering for tokenized physical gold.
HSBC will use Harmonize, Metaco’s platform for institutions, which “helps unify security and management of digital asset operations,” according to the press release.
HSBC is the latest institution to embrace digital asset custody, after U.S. banking giant BNY Mellon announced a similar move in 2021.
Tokenized securities are effectively regulated assets, like bonds and equities, in the form of tokens issued on a blockchain.
In turn, a blockchain can be considered a shared ledger on which assets are recorded digitally. The technology served as the foundation upon which bitcoin was built, but its applications in the banking world are very different to those of bitcoin and other cryptocurrencies.
In the case of banks, these institutions are leveraging blockchain for payments, trading, and other purposes, often without a digital token being involved. Banks are finding utility in tokens by digitizing equities, bonds and other assets.
HSBC is “seeing increasing demand for custody and fund administration of digital assets from asset managers and asset owners, as this market continues to evolve,” Zhu Kuang Lee, chief digital, data and innovation officer for securities services at HSBC, said in a statement.
Metaco CEO Adrien Treccani told CNBC via email that the partnership reinforces “continued momentum working with top tier financial institutions.”
“Financial institutions are ready to scale digital assets pilots to real use cases around custody, issuance, trading and settlement of tokenized assets, and in so doing, unlocking economic benefits and new revenue streams.”
It marks another step from HSBC toward embracing digital assets. The bank, which holds about $3 trillion in assets globally, already lets its Hong Kong clients trade in bitcoin and ether exchange-traded funds.
Up from No. 13 in 2022, Minneapolis, Minnesota ranked as the No. 2 most neighborly city in America.
S. Greg Panosian | E+ | Getty Images
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S&P 500 in correction The S&P 500 index slipped into correction territory on Friday amid fears of a recession, closing 10.3% lower from this year’s peak on July 31. The Dow Jones Industrial Average closed 1.12% lower, and the Nasdaq Composite held 0.38% higher. Asia-Pacific markets kicked off the week on a mixed note ahead of key economic readings from the region. Japan’s Nikkei 225 fell 1.03% while the Kospi in South Korea was up 0.35%.
Hey, Big Spender Inflation in September rose but consumer spending came in even stronger than economists expected, numbers from the Commerce Department showed on Friday. The core personal consumption expenditures price index, the Fed’s key inflation measure, was 0.3% higher for the month, which was in line with the Dow Jones estimate. Even though prices picked up, personal spending continued, rising 0.7%, which was better than the 0.5% forecast.
HSBC’s bumper profit HSBC reported quarterly profit after tax of $6.26 billion, up a whopping 235% compared to the $2.66 billion from a year ago quarter. Profit before tax, for the three months ended September, rose by $4.5 billion to $7.7 billion, due to a higher interest rate environment.
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Markets survived another brutal week and are looking to wrap up an even more tumultuous month, which saw the S&P 500 and Nasdaq indexes slip into correction territory.
A correction is when an index falls more than 10% (but less than 20%) from its most recent closing high. It’s called a correction because historically the drop often “corrects” and returns prices to their longer-term trend.
Investors have had to tackle everything from multi-year high Treasury yields, a busy earnings season to multiple inflation readings. A reading on personal consumption expenditures on Friday served as the latest evidence that American consumer spending remained healthy.
Core PCE rose 0.3% in September and 3.7% year over year, matching estimates from economists polled by Dow Jones. Personal spending increased 0.7%, however, surpassing estimates of 0.5%. PCE is the Federal Reserve’s most preferred inflation metric.
The reading came ahead of the Fed’s two-day policy meeting this week, at the end of which the U.S. central bank is widely expected to pause on hiking rates.
Morningstar’s chief U.S. market strategist Dave Sekera says the Fed is done hiking, and forecasts the central bank will start to cut the federal funds rate in the first half of 2024.
“As we forecast the rate of economic growth to slow and inflation to moderate, this allows the Fed to move to increasingly more accommodative language in early 2024 to prepare the market in advance for when they decide to begin cutting rates,” Sekera wrote.
A Fed meeting was by no means the only market-moving event investors were looking at. About 30% of the S&P 500 is scheduled to report earnings this week, among which Apple, McDonald’s and Pfizer will deliver quarterly results.
And if that wasn’t packed enough, market players will also be chasing the October jobs report due on Friday. It’s expected to show the U.S. economy added 175,000 jobs last month, according to consensus estimates from FactSet. That will follow a blowout 336,000 job additions from the prior month.
Aaron P | Bauer-Griffin | GC Images | Getty Images
HSBC’s profit after tax came in at $6.26 billion in the three months ended September, jumping 235% compared to the $2.66 billion in the same period last year.
Europe largest bank by assets also saw profit before tax for the quarter rise by $4.5 billion to $7.7 billion, mainly due to a higher interest rate environment.
However, the numbers missed expectations by economists, who were forecasting a third quarter profit after tax figure of $6.42 billion and profit before tax of $8.1 billion.
HSBC said the increase was in part due to a $2.3 billion impairment in the third quarter of 2022 relating to the planned sale of its retail banking operations in France.
Of that, $2.1 billion was reversed in the first quarter of 2023 as it became less certain that the transaction would be completed.
“We now expect to reclassify these operations to held for sale in 4Q23, at which point the impairment would be reinstated,” it said.
Revenue rose to $7.71 billion in the third quarter, up from $3.23 billion a year ago. HSBC also attributed this to the higher interest rate environment, saying that it has supported growth in net interest income in all of its global businesses.
Net interest margin — a measure of lending profitability — stood at of 1.7%, up by 19 basis points year on year and beating estimates of 1.68%.
However, NIM fell two basis points compared with the previous quarter. This reflected an increase in customers migrating their deposits to term products, particularly in Asia, HSBC said.
For the nine months ended September, profit after tax stood at $24.33 billion, compared to $11.59 billion in the first nine months of 2022.
HSBC’s Hong Kong-listed shares rose 0.43% after the announcement.
In light of the results, the bank’s board approved a third interim dividend of 10 cents per share. HSBC also said it will initiate a further share buy-back of up to $3 billion, which is expected to “commence shortly” and be completed by its full-year results announcement on Feb. 21, 2024.
“We’re pleased to again reward our shareholders. We have now announced three share buybacks in 2023 totaling up to $7 billion, as well as three quarterly dividends which total $0.30 per share,” group CEO Noel Quinn said in the release. “This underlines the substantial distribution capacity that we have, even as we continue to invest in growth.”
The buyback is expected to have a 0.4 percentage point impact on its common equity tier 1 capital ratio, or CET1 ratio, the bank said. The CET1 ratio is a measure of the financial resilience for European banks.
Moving forward, HSBC said it plans to reduce its CET1 ratio to between 14% to 14.5%, down from the current level of 14.9%. It revealed that its dividend payout ratio is 50% for 2023 and 2024, excluding material notable items.
Correction: The headline has been updated to reflect that HSBC announced a $3 billion share buyback.
The U.K.’s embattled Metro Bank has launched talks to sell a third of its mortgage book in an urgent attempt to shore up its balance sheet.
Matthew Horwood | Getty Images News | Getty Images
LONDON — The U.K.’s Metro Bank will likely struggle to raise fresh capital to shore up its balance sheet, according to analysts, who outlined bleak prospects for the beleaguered bank.
A number of ratings agencies and investment banks have downgraded the bank’s stock following a turbulent 24 hours in which its shares were briefly suspended from trading twice after plunging more than 29% from Wednesday’s close.
The turmoil came amid reports that the embattled bank was seeking to raise up to £250 million ($305 million) in equity funding and £350 million of debt. Metro Bank confirmed in a statement early Thursday that it was considering “how best to enhance its capital resources.”
Late Thursday, reports emerged that the bank was in talks to sell a third of its mortgage book. Rival banks including HSBC, Lloyds Banking Group and NatWest Group are now being sounded out to buy around a £3 billion chunk of its mortgage book, according to sources who spoke to Sky News and the FT.
Selling the assets would reduce the bank’s earnings but also sharply reduce the amount of capital it is forced to hold.
Metro Bank did not immediately respond to CNBC’s request for comment on the reports; nor did any of the rival banks cited.
However, analysts said the bank’s fund-raising prospects did not look good.
Investment bank Stifel on Friday downgraded the stock from “hold” to “sell,” saying it thinks there are “no easy solutions for the bank and risks to the bonds remain skewed to the downside.” It noted that the bank could be nationalized under the Bank of England’s resolution scheme and then sold on, either as a whole or in parts.
“We think at this point the bank is in a difficult position, with capital needs potentially of up to a billion over the next two years,” the analysts said, adding that the bank is just about breaking even or marginally profitable under “currently benign market condition.”
Barclays Bank also downgraded the stock to underweight on Friday.
Meanwhile, Fitch Ratings on Thursday placed the bank on “ratings watch negative” based on its assessment that “short-term risks to the UK challenger bank’s business model stabilization, capital buffers and funding have risen.”
The developments mark the latest phase in an ongoing saga for Metro Bank, which launched in 2010 with a pledge to challenge traditional banking in the wake of the financial crisis.
Last month, the Bank of England’s main regulator, the Prudential Regulation Authority, suggested that it was unlikely to allow the lender to use its own internal risk models for some mortgages.
The bank’s chair Robert Sharpe was called in on Thursday to meet officials from the central bank’s regulatory authority, as well as the Financial Conduct Authority (FCA), according to the FT, which cited people briefed on the situation.
The sources said it was the latest in a series of contacts between regulators and the bank over the past month as its share price almost halved.
When contacted by CNBC, the Bank of England declined to comment on the meeting.
Shares of Metro Bank have lost around two-thirds of their value since the middle of February. The bank was valued at £87 million as of the Wednesday close, according to Reuters.
Given its relatively low market cap, ratings agency DBRS Morningstar, which holds no rating on the bank, said in a note that Metro Bank’s ability to access external financing will be “highly constrained.”
However, it added that the bank’s difficulties were unlikely to have a broader impact on the U.K.’s financial sector due to its size and idiosyncratic issues.
In 2019, the bank reported a serious miscalculation of its risk-weighted assets, damaging its reputation and resulting in fines of £10 million and £5 million from the FCA and the PRA, respectively.
In the meantime, short sellers have been tapping into the bank’s misfortunes. Investors betting against the bank have gained £4.8 million so far in 2023, and £2.5 million in October alone, according to financial analytics firm Ortex.
“The short interest in Metro is very high,” it said in a note. “ORTEX currently estimates that 9.35% of the freely tradable shares are on loan and most likely shorted.”
Brian Armstrong, chief executive officer of Coinbase Global Inc., speaks during the Messari Mainnet summit in New York, on Thursday, Sept. 21, 2023.
Michael Nagle | Bloomberg | Getty Images
Coinbase CEO Brian Armstrong is unhappy with JPMorgan Chase’s decision to block crypto-related transactions at its U.K. digital banking subsidiary, Chase UK.
Chase UK earlier this week put out a notice to customers saying it will no longer allow its customers to purchase cryptocurrencies using its debit cards or through bank transfers, citing concerns over the risk of fraud to users from digital tokens.
The bank, which has operated as a standalone entity in the U.K. since 2021, said it was taking the step because “fraudsters are increasingly using crypto assets to steal large sums of money from people.”
“Once in a while we see a bank in the world that decides they want to de-platform this whole industry,” Armstrong said in an interview with CNBC’s “Squawk Box” on Thursday.
“I don’t think that’s OK. I don’t think that’s the rule of things in our society. I think the government should decide what is allowed and what’s not.”
The move from Chase UK has not happened in a vacuum. Other British lenders have taken similar steps to bar crypto transactions, citing the risk of fraud.
Examples include NatWest, which placed limits on the amount of cash that can be sent to crypto exchanges, and HSBC, which banned crypto purchases altogether.
In its note to customers Tuesday, Chase UK said that it was blocking the use of crypto by its customers due to concerns over a rise in fraud.
Data from Action Fraud, the U.K. fraud reporting agency, shows that U.K. consumer losses to crypto fraud increased by over 40% in the last year, surpassing £300 million for the first time.
Bitcoin, ether, XRP and other cryptocurrencies are not legal currency.
Originally created as an alternative, online form of money meant to bypass the need for bank accounts and other financial middlemen, they have increasingly been embraced by mainstream financial institutions such as PayPal, Visa, and Mastercard.
The people transacting in bitcoin and other digital currencies don’t disclose their real identity, making it harder for banks to trace them for suspicious payments versus digital fiat currency transactions.
Nevertheless, crypto’s proponents say that the industry has matured a great deal in the wake of the collapse of FTX and numerous other scandals. They say it can become part of everyday payments and trading in a way that is legitimate.
For its part, the U.K. has been working to develop legislation that would regulate retail trading in crypto assets.
The Financial Services and Markets Bill is one example of legislation that already includes some provisions on cryptocurrency. That specific law aims to bring crypto assets into the regulatory fold. But it is not a comprehensive law addressing crypto through tailored laws.
Jurisdictions around the world from Dubai to Singapore have been trying to position themselves as crypto-friendly places to encourage firms to set up shop there.
The U.S., meanwhile, has taken a hard line on cryptocurrency firms with its regulators stepping up enforcement action against companies.
Armstrong suggested that the U.K. government should take heed of Chase UK’s move to ban crypto payments — though he acknowledged the country’s ambition to become a “Web3 and crypto hub.”
“The government in the U.K. through [U.K. PM] Rishi Sunak and Andrew Griffith the city minister in London have it made clear they want to make the U.K. a Web3 and crypto hub,” Armstrong said.
“They are trying to attract businesses there. I was disappointed to see Chase UK’s stance on that. I hope that was a misunderstanding that will be clarified in the coming weeks.”
Pumpjack near school buses, Arvin, Kern County, California, USA.
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This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Digesting data U.S. markets traded higher Monday as all three major indexes edged up. Asia-Pacific markets were mostly higher Tuesday. Hong Kong’s Hang Seng Index was near flat as advance estimates showed the city’s second-quarter gross domestic product contracting 1.3% quarter on quarter. Meanwhile, Australia’s S&P/ASX 200 rose around 0.7% as the central bank kept interest rates unchanged at 4.1% for the second straight month.
Intrigue in India Investors are growing interested in India as the country’s economy expands and stock market rallies — even amid high inflation. “Whatever the world is grappling with, it’s business as usual for India,” said Feroze Azeez, deputy CEO of Anand Rathi Wealth. Here are four sectors analysts think are the most appealing for investors.
HSBC’s humongous profit HSBC reported second-quarter earnings that easily beat analysts’ expectations. Pre-tax profit of the largest bank in U.K. jumped 89% year-on-year to $8.77 billion, while revenue surged 38% to $16.71 billion. In light of those sterling results, HSBC’s board announced they’re planning to initiate a share buyback of up to $2 billion.
New filing against JPMorgan Chase JPMorgan Chase handled more than $1.1 million in payments from Jeffrey Epstein to “girls or women” even after the bank says it removed the sex offender as a client in 2013, a lawyer for the U.S. Virgin Islands told a judge Monday. The Virgin Islands alleges that JPMorgan facilitated and financially benefited from Epstein’s sex trafficking of young women.
[PRO] Benefiting from bankruptcies Corporate insolvencies in the U.K. have been rising in recent months. While it’s bad news, obviously, for those bankrupt firms, two global stocks stand to gain from the trend — analysts expect one of them to pop 31% over the next 12 months.
A soft landing — where inflation cools while the U.S. economy, labor market and corporate earnings continue growing — is, of course, good news for markets.
That gave all indexes a rosy July. For the month, the S&P climbed 3.1%, its fifth consecutive month of gains. The Dow jumped 3.4% after experiencing a 13-day rally, its longest since 1987. The Nasdaq Composite popped 4.1%, its first five-month streak in more than two years.
The optimism extended to the commodities market. The promise of higher economic activity, after all, raises demand for the raw input needed to keep the world moving, literally.
Oil prices had their best month since January 2022, when both Brent crude and West Texas Intermediate crude added more than 17.2%. As of publication time, October Brent futures were trading at $85.19 per barrel and the September WTI contract at $81.6 per barrel.
Metal prices are climbing as well. Prices for aluminum and zinc rose 2.7%. Copper — typically seen as an indicator of economic activity because it’s used in most parts of the economy — is at its highest since May 1, putting it on track to have its best month since January.
Rocketing stock prices might not necessarily, or directly, have effects on the cost of eggs in grocery stores, for example. But a hot commodities market nudges up prices in the real world.
That’s the difficult balancing act the Federal Reserve has to contend with: As a soft-landing scenario becomes more plausible, renewed economic activity might, ironically, make inflation harder to suppress.
