"Big Banks" UBS: HSBC's performance last quarter was strong, rating "Neutral"

UBS published a research report indicating that HSBC (00005.HK) performed strongly in the fourth quarter of last year, with pre-tax profit excluding significant items exceeding market expectations by 9%, revenue exceeding expectations by 3%, and net interest income exceeding by 6% (5% higher after excluding one-time items), while fee and other income was 1% below expectations. Operating expenses were in line with expectations, and credit impairment was 12% lower than market forecasts. During the period, the common equity tier 1 capital ratio was 14.9%, higher than market expectations. Considering the impact of the privatization of Hang Seng, the pro forma common equity tier 1 capital ratio was 13.8%.

UBS stated that the group confirmed the net cost impact on the common equity tier 1 capital ratio from this acquisition of Hang Seng to be 110 basis points, better than expected, and is anticipated to bring in USD 900 million in earnings by the fiscal year 2028, with related restructuring costs amounting to USD 600 million. UBS believes that this transaction is significant for HSBC in increasing its exposure to the Hong Kong banking business and simplifying the group structure.

HSBC declared a fourth-quarter dividend of 45 cents per share, continuing to suspend share buybacks, in line with market expectations. Management also provided new guidance for the fiscal year 2026. UBS rated HSBC as "neutral," with a target price of HKD 140.6 for Hong Kong stocks and a target price of 1,309 pence for London listings