HSBC's pre-tax profit declines 12.3 YoY at USD12.3b

But its 1H14 results are unsurprising.

HSBC reported pre-tax profit of USD12.3b, down 12.3% YoY, which was close to the consensus forecast of USD12.5b conducted by HSBC.

According to a research note from Maybank Kim Eng, meanwhile, NIM narrowed by 14bps HoH to 1.95% in 1H14.

This is partly due to the shift towards low-yield secured loans and the provisions arising from the compliance with Consumer Credit Act in the UK (negative impact on NIM of 4bps).

Management expects interest rate hike in 4Q14 in the UK and 1H15 in the US, while Maybank Kim Eng estimates for every 25bps increase in UK and US interest rate, HSBC’s NIM will widen by 3bps and 2bps, respectively.

Here’s more from Maybank Kim Eng:

This should be more than offset by the run-down of high-yield loans. We lower our NIM forecast from 1.95-2.02% to 1.89-1.96% for 2014-15.

A rise in underlying cost-to-income ratio from 55% in 1H13 to 58.2% in 1H14.

This was mainly due to increased investment in risk and compliance operations (+USD0.3b YoY) and the new Financial Services Compensation Scheme levy in the UK (USD0.4b).

HSBC recorded additional cost savings of USD0.5b in 1H14.

We believe additional cost savings should be limited in 2H14-2015 while investment in risk and compliance operations will continue. We raise our expense forecast by 2-5% for 2014-15.

Sound asset quality. Credit costs rose from 0.31% in 1Q14 to 0.4% in 2Q14 given an increase in collective loan impairment charges in North and Latin America.

Still, total impaired loans in all regions saw a HoH decline in 1H14. We maintain our credit costs forecast at 0.41-0.44% during 2014-16, in line with management guidance.

Share buyback unlikely in 2014. CET1 CAR was 11.2% in Jun 2014 under the CRD IV approach.

Management remains unsure of the minimum CET1 CAR and the capital requirement for ring fencing in the UK. This should postpone its plan of share buyback in 2014.