HSBC is looking rosy – but ‘politic risks’ won’t go away any time soon

The bank’s ‘pivot to Asia’ has worked so far but investors should care that HSBC is pretending geopolitical risks don’t exist, writes James Moore

HSBC: Asia’s local bank with a side order of London (Reuters)

HSBC’s results were, said the analysts, “a mixed bag” – but can we please just bin that phrase? It’s a mixed bag every time one of these sprawling global mega-banks reports. They’re financial behemoths, made up of a dizzying array of constituent parts some of which inevitably work better than others.

As such, you can nearly always find a reason to reach for a stiff whisky when they report. But you can usually just as easily find an excuse to pop the cork on the fizz, if you’re of the glass half full persuasion.

This time, the bank’s reporting showed the impact of China’s zero Covid-19 strategy in Hong Kong – where it makes a third of its profits and where Omicron is attempting to do its worse. There was also the small matter of a surge in defaults hailing from the country’s shaky real estate sector. More fodder for the doomsayers came courtesy of the share buyback, which wasn’t as big as had been hoped.

However, on the flip side, fourth quarter profits doubled. The UK business did pretty well and rising global interest rates should make for a happy year ahead, boosting margins and especially bonuses. There were a lot of those being shared around. The pool was boosted by more than a third. Heads bankers win, tails bankers win, and if something freaky happens and the coin falls on its end? Guess what? Bankers win!

On balance, CEO Noel Quinn, who is himself making nearly £5m a year, has grounds for optimism and not just because of those rising rates. The bank is on a more even keel than it was before he took on the top job. People are talking about it with a lot more positivity than they were.

The shares didn’t do much for him on the day. The markets looked at the numbers and said “meh”. But that’s ok too. HSBC’s price has been wobbling recently but only after a very strong run.

If only the geopolitics would pipe down. It’s true that China’s assertive, even bellicose, behaviour has rather been put in the shade by the Kremlin’s moves towards Ukraine.

A recent report by the bank, in fact, had some cheery things to say about the place. “Despite the commonly-held assumption that China is facing increased decoupling with the rest of the world, we have found the opposite to be true,” wrote Qu Hongbin, HSBC’s chief China economist, just a day before the results dropped. Handy that.

But another oft repeated phrase, “political risk”, bears repeating. There is no reason to bin that one.

Quinn is the architect of the bank’s “pivot to Asia”. Let’s be clear – Asia has always been central to HSBC’s fortunes and we were actually talking about a “pivot to Asia” strategy six years ago when Stuart Gulliver, the bank’s former CEO, felt he had to make mention of China’s Pearl River Delta every second sentence.

Stuart, what do you think interest rates are going to do? Well we’re moderating our expectations but have you seen how we’re doing in the Pearl River Delta? Stuart, what do you think of the Arsenal’s chances this week? I’m confident. They’ll be cheering along in the Pearl River Delta.

But it’s fair to say that HSBC is the world’s local bank no longer and it isn’t trying to be. It is Asia’s local bank with a side order of London that might end up getting spun off at some point but might not if things start getting frothy because having a bolthole is handy.

HSBC mostly does its best to pretend geopolitical risks don’t exist. Except, that is, when it has to do things like voice support for Hong Kong’s repressive security laws. That’s when they rear up and bite down hard.

It’s quieter now, but that doesn’t mean it is going to stay that way, something which should be borne in mind by anyone tempted to ride this tiger now Quinn has got its coat looking glossy.