HSBC yields 8% after results miss

HSBC, which decided this month to keep its HQ in the UK, slumped by over 5% Monday following a terrible fourth quarter. Tipped by the City to make a $2.1 billion (£1.5 billion) profit in the three months to December, the bank lost $858 million.

Even if you strip out foreign exchange movements and one-off items, quarterly profit missed forecasts by 47%. A string of other "misses" and threat of further litigation for hiring practices in Asia confirmed HSBC as the FTSE 100's worst performer during morning trade.

An impairment chart of over $1.6 billion was $1 billion more than the previous quarter, and 71% worse than consensus estimates. Biggest culprit was the commercial banking division, where exposure to oil and other commodities meant provisions rose fourfold quarter-on-quarter to over $1 billion.

Quarterly revenue of $12.9 billion was down 1% year-on-year and 8% shy of consensus. It's also why underlying pre-tax profit of $1.9 billion fell way short of the $3.6 billion pencilled in by analysts. There was, of course, the $1.5 billion bank levy to be paid in the quarter, plus $8.5 billion of other costs, although this was a little better than forecast.

Thankfully, the common equity Tier 1 capital ratio improved by 0.1% quarter-on-quarter to 11.9%, up from 11.1% at the end of 2014. Pro-forma for the sale of its Brazilian business, expected to complete soon, it was 12.4%.

A quarterly dividend of 21 US cents meant the full-year payout increases by one cent to 51 cents. At today's price, that gives a yield of over 8%, and HSBC chiefs say they're committed to a "progressive" dividend policy.

Ian Gordon at Investec Securities continues to back the bank's shares. "On 0.9x 2015-17e tangible net asset value, 'buy' recommendation reaffirmed," he says. The previous price target of 540p is under review.

Among the lengthy footnotes, however, HSBC does flag up a US Securities and Exchange Commission investigation into the hiring of staff linked to government officials in Asia-Pacific. It's not the only bank involved, but it's more unwelcome news, and the possible impact "could be significant".

It's the same warning HSBC uses to describe the threat of investigations into previous misdemeanours. Among the numerous banking scandals, it lists subprime mortgages, foreign exchange fixing, anti-money laundering procedure, US tax reporting and Libor setting.

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