HSBC May Hold Off On Investments As China, UK Growth Slows

HSBC, the global bank, expressed caution on Tuesday (Feb. 19) that it may be forced to put off some investments in 2019 as it contends with slowing growth in China and the U.K.

According to a report in Reuters, citing the bank, HSBC’s warning came in conjunction with missing profit forecasts for 2018, sending the stock lower in trading on Tuesday.

According to the report, HSBC Chief Executive John Flint said the reason for the potential delay in investment plans would be to avoid missing a target that is known in the industry as “positive jaws,” which gauges whether the bank’s revenue is growing at a faster rate than expenses. It would mark the second year in a row of missing that target.

“We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business,” Flint said, according to the newswire.

The bank earlier in the day posted a 16 percent increase in profit before taxes, which was lower than expectations.

Back in June, HSBC had announced plans to invest between $15 billion and $17 billion during the course of three years for technology and to expand in China. It vowed then to keep its profitability and dividend targets intact.

“The key thing is just to moderate the pace of investments … not to cancel it or change the shape of the investments,” Flint said in a Reuters report.

HSBC’s inability to achieve “positive jaws” last year was blamed on weakening markets during the last three months of 2018. The CEO’s commentary comes amid a backdrop of slowing economic growth in China, which is hurting the bank’s plan to invest more into Asia, from where close to 90 percent of the profits are derived, according to Reuters.

In Asia, profits in 2018 increased by 16 percent to $17.8 billion, representing 89 percent of the group profit, noted the newswire. “Clearly, our customers are really more cautious and are more thoughtful around this trade war with the U.S.,” Flint told Reuters. “It’s possible that we’ll see a slightly lower growth rate this year, but we are still going to see a growth rate.”