China's Economic Woes Impact HSBC's Quarterly Profits

HSBC, the Asia-focused lender, reported a substantial 80% decrease in its pretax profits in the final quarter of 2023, attributing the decline to charges related to its exposure to China's troubled real estate industry and its stake in Bank of Communications (BoCom). The bank took a $3 billion hit on its BoCom investment and an additional $2 billion charge from selling its retail banking operations in France.

The $3 billion impairment, calculated after a thorough evaluation in December, included an estimate of future cash flows at BoCom. HSBC also set aside $3.4 billion in provisions for expected credit losses and other charges associated with its mainland China commercial real estate exposure.

Despite these charges, the bank's annual profit reached $30.3 billion, reflecting a 78% increase from 2022. This fell short of the $34.1 billion analysts had anticipated. Following the announcement, HSBC's Hong Kong-listed shares dropped by nearly 4%, while its London-listed shares experienced a 7% decline at market open.

The bank's Chairman, Mark Tucker, acknowledged that China's reopening recovery has been challenging but expressed optimism about the economy's stability. He emphasized the country's 5% growth target in 2023, which is expected to continue in 2024, supported by recent policy measures for the property sector and local government debt.

China's economic struggles, particularly in the real estate sector, have had a significant impact on global banks. The ongoing real estate crisis, sparked by a government crackdown on developer borrowing in 2021, has resulted in a funding squeeze, declining investment, and sales. Major developers, including Evergrande, have defaulted on their debts, leading to increased credit impairment charges for banks with exposure to the sector.