HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L) has released a Q3 update. Reported profits fell heavily versus Q3 2015 because they included the impact of the disposal of HSBC’s operations in Brazil, changes in the fair value of its debt and the costs of implementing the cost reduction programme. On an adjusted basis, HSBC’s pretax profit rose by 7% against Q3 2015 and it was able to report higher profits in all four of its global businesses, as well as in four out of five regions.
HSBC’s global universal banking model recorded higher adjusted revenue than in Q3 2015, with its cost reduction programme making progress in reducing operating expenses. The end result of this was positive jaws of 5.6% for Q3 and 1.5% for the first nine months of the year. HSBC’s operating expenses fell on both a reported and adjusted basis to $8.7 billion and $7.2 billion respectively, with the bank able to increase its market share in a number of key markets and international product areas. This included trade finance in Hong Kong and Singapore.
HSBC’s tier 1 capital ratio has increased to 13.9% following a change in the regulatory treatment of its investment in BoCom. This provides the bank with greater financial flexibility to manage the uncertain outlook it faces.
In 2016, HSBC’s shares have risen by 13%. This is ahead of financial services peers Barclays PLC (LON:BARC), Lloyds Banking Group PLC (LON:LLOY), Standard Chartered PLC (LON:STAN) and Prudential plc (LON:PRU). Barclays has declined by 16%, Lloyds is 24% lower, Prudential has lost 13% of its value and Standard Chartered has risen by 12% since the start of the year.
In my view, HSBC has long term investment appeal. Its cost reduction strategy is making progress and its improved financial performance on an adjusted basis shows that it is performing well in a difficult operating environment. Although its shares may be volatile, I feel that they could keep outperforming sector peers.