4 biggest lowlights behind HSBC's third quarter results

FX income fell 31% to US$660m.

According to CCB International Securities, HSBC reported 3Q13 underlying profit-before-tax (PBT) of US$5.1b. Adding back US$0.4b in UK customer redress charges, PBT was largely in-line with our US$5.5b forecast. A marginally weaker-than-expected top-line was offset by better-than-expected core operating expenses.

From the results,  CCB International Securities highlighted four lowlights from the earnings results: (1) Private Banking had a loss driven by legal provisions for a DOJ settlement and goodwill charges; (2) FX income was down 31% QoQ to US$660m given lower volatility in global currency markets;

(3) Compliance costs continue to materially increase as headcount has increased 1,600 since year-end; and (4) No incremental guidance was provided on the dividend except that the group remains committed to a progressive dividend and will look to neutralize the script take-up as early as next year.

Here's more:

Highlights: (1) Underlying expenses of US$9.5b for the quarter were down 4% YoY as reflected in 9% ‘positive jaws’ for underlying YTD figures;

(2) Buoyed by both strong internal capital generation and a weaker USD (particularly against Sterling), core Tier-1 (Basel 2.5) was up 60bp HoH to 13.3% while CRD IV core Tier-1 increased 50bp to 10.6%;

(3) Margins for the group were largely flat sequentially at 2.22% as the slowdown in trade margins is close to a inflection point; and (4) Loan impairment charges of US$1.6b were down 7% sequentially as a spike in Latin American provisions in 2Q13 did not recur and US provisions continue to benefit from higher housing prices.