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Nikkei Markets

HSBC, Hang Seng signal bigger challenges as trade war drags on

Revenue outlook is a "bit weaker" for this year, HSBC CEO says

"We won't change our long-term investment strategy, but of course we will check market conditions before making any final decisions," Hang Seng Bank Vice Chairman Louisa Cheang said.   © Reuters

HONG KONG (Nikkei Markets) -- Hong Kong banking heavyweights HSBC Holdings and its subsidiary Hang Seng Bank have signaled that they are prepared to slow the pace of planned investments if they are faced with more operating challenges.

While detailing their 2018 annual results on Tuesday, executives at the two lenders acknowledged that a slowdown in the global economy against the backdrop of Sino-American trade tensions was now proving to be a bigger headache than six months ago. In August, when the two banks reported last year's interim results, their officials had indicated that only a small proportion of their clients were affected in the wake of the tit-for-tat punitive tariffs that the world's two largest economies imposed on goods they import from one another.

HSBC would invest more cautiously if further challenges emerge, and while the bank aims to grow revenues at a faster pace than costs, resulting in a positive "jaw," that in itself was not its main target, Group Chief Executive John Flint told reporters on a conference call Tuesday. Instead, the bank aims to deliver returns above the cost of equity, he said.

Flint, who assumed his role in February last year, had said in June that HSBC will invest $15 billion to $17 billion in growth and technology, provided it was able to achieve positive jaws. HSBC was also targeting a return on tangible equity of greater than 11% by 2020, he said at the time.

"As we plan for this year, revenue outlook is a bit weaker, while cost savings would be different from last year," Flint said. "As the outlook for Asian economic growth has come off a little, it is reasonable" for loan growth in the region to moderate in 2019, he added.

Flint said he hoped the trade tensions wouldn't escalate, leading to the imposition of higher import tariffs.

The U.S. and China are currently observing a 90-day truce, a period during which Washington has agreed to hold off from increasing import tariffs on Chinese goods to 25% from 10%.

"The 25% tariff will not be good for the Asian region. I very much hope that is not something we get into," Flint said.

Meanwhile, executives at Hang Seng Bank said they saw bigger operating challenges as economic growth in both Hong Kong and Chinese economies was expected to slow this year.

The bank, in which HSBC holds a more than 62% stake, plans to boost the efficiency of its operations as the environment has grown "more challenging," Hang Seng Bank Vice Chairman Louisa Cheang told reporters at a news conference on Tuesday.

While demand for loans could be affected amid the trade tensions, some of the bank's clients have plans to expand their investments in Southeast Asia, and the bank will pursue opportunities from those needs, she added.

"We won't change our long-term investment strategy, but of course we will check market conditions before making any final decisions," Cheang said.

Earlier on Tuesday, HSBC reported a pretax profit of $19.89 billion for 2018, up 15.9% from the year before, missing analyst expectations. Revenue grew 5%, also falling short of estimates and resulting in a negative adjusted jaw ratio of 1.2% as costs grow at a faster pace.

Hang Seng Bank, meanwhile, reported a 21% increase in last year's net profit to HK$24.21 billion ($3.08 billion), helped by a 22.3% increase in its net interest income.

Shares of HSBC, a heavyweight on Hong Kong's benchmark Hang Seng Index, lost 2.3% to HK$66.15, while Hang Seng Bank added 0.3% to HK$186.20. The Hang Seng Index fell 0.4% to 28,228.13.

-- Amy Lam

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