HSBC reported total revenues of $17 billion in Q1 2024, up 5% versus the year-ago figure. The revenue growth was driven by a stronger performance of the company's Wealth products in the Wealth And Personal Banking segment. Profit before tax increased by $0.8bn to $8.5bn compared with 3Q23.
Below are key drivers of HSBC's value that present opportunities for upside or downside to the current Trefis price estimate for HSBC:
For additional details, select a driver above or a division from the interactive Trefis split for HSBC at the top of the page.
HSBC is one of the world's largest banking and financial services organizations, providing individuals, corporations, governments, and institutions in 71 countries with financial products and services ranging from retail banking, credit cards, corporate and investment banking, custody banking, and wealth management. HSBC earns most of its profits from its operations in Asia, especially in Hong Kong. Over the years, the bank has focused on improving its retail and commercial banking presence in emerging markets such as India, Latin America, and the Middle East.
HSBC is a market leader in nearly every financial service, including retail banking, commercial banking, investment banking, wealth management, and custody banking. The diversified business model and the bank's strong global presence allow HSBC to provide its individual and institutional customers with a wider range of services. Moreover, the business model also brings in significant cross-selling opportunities that are not readily available to its competitors.
HSBC reported pre-tax profits of just above $5.70 billion on average for its Retail Banking & Wealth Management (RBWM) operations in Asia-Pacific & MENA regions over 2015-2019 from around $11.2 billion in revenues representing an operating margin of over 49% for the period. In comparison, RBWM Europe made less than $500 million from 2015-2018, while the division incurred losses during 2019. The primary reason for this notable difference in operating efficiency is the bank's extremely strong presence in Hong Kong and mainland China, where it has achieved economies of scale and scope. On the other hand, the bank's spread-out network in Europe has resulted in high fixed costs even as slowing economic conditions in the region squeeze the top line.
In 2018, the British government confirmed backing the stringent recommendations for U.K.-based banks laid out by the ICB late in 2011. The legislation forced HSBC to face several difficult decisions owing to the ring-fencing recommendation that sought to separate retail and investment banking operations by the end of 2019.
The European Central Bank (ECB) has increased interest rates steadily since 2022 in response to the high inflation numbers. High interest rates would make it expensive for people to borrow money. While it will likely hurt the loan growth, the bank's net interest margin will benefit from improved interest rates.
As economic conditions eventually improve, we expect that investors' risk appetites will also increase, which should drive investment and demand for wealth management services. Long-term trends, including the ongoing shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies, will also positively impact revenues and assets under management. However, the outbreak of coronavirus has adversely impacted economic recovery. The current impact of Covid-19 cannot be ascertained, but we expect growth to remain muted for at least the next few quarters.
