Bumper bonuses at HSBC do not reflect China risk

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Bankers’ bonuses in Asia have been plunging. But not for Noel Quinn.

Total pay for the HSBC chief executive nearly doubled to £10.6mn ($13.4mn) in 2023. The Asia-focused lender also boosted its overall bonus pool despite reporting earnings that missed expectations on Wednesday. Weakness in China will make justifying those hefty payouts increasingly difficult.

Pre-tax profit rose 78 per cent to $30.3bn in 2023, missing analysts’ expectations. The bank reported a 14.6 per cent return on tangible equity in 2023, which also fell short of estimates at 17 per cent. The bank’s Hong Kong-listed shares dropped more than 3 per cent after the results.

HSBC’s payouts are bucking the trend, both in terms of its own results and the region. Total pay for senior bankers in Asia, excluding Japan, reportedly fell below the $1mn mark last year, to as low as $700,000, the weakest in nearly two decades. At HSBC, the bonus pool is up 12 per cent with payouts rising to $3.7bn last year.

A few years ago that would have been acceptable. As Chinese equities hit a record high in 2021, Chinese listings rose to the top of global stock offering rankings. Lenders looking for growth in Asia had little choice but to expand in China. To do so, they had to pay up to poach local talent from rivals.

But now, amid a dwindling number of deals in China and Hong Kong and stocks down 40 per cent from their 2021 peak, there is little justification to continue that practice. US and European banks have trimmed bankers in Asia because of China’s slowing growth.

Meanwhile, the woes of the local property sector pose a threat to earnings. A $3bn charge on HSBC’s stake in China’s Bank of Communications, in which it has a 19 per cent holding, is significantly larger than the charge peer Standard Chartered has taken on its China bank stake, and so far the largest writedown among international peers in China.

Costs are also rising, up 6 per cent last year, more than HSBC had previously guided. The bank says costs will grow a further 5 per cent this year, which includes an increase in staff pay.

HSBC shares are up a fifth from its March low and trade at tangible book value, a 70 per cent premium to StanChart. That gap reflects expectations that the lender’s aggressive push into the Chinese market will start paying off. Any major improvement in the condition of China’s economy would require the country’s property crisis to bottom out. Investors should wait until that time has arrived before paying the premium.

Lex is the FT’s flagship daily investment column. If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline

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