HSBC Braces for $1.6 Billion Hit in China Shakeup -- But Investors Are Getting a $3 Billion Surprise
HSBC Holdings (NYSE:HSBC) is staring down a potential pretax loss of up to $1.6 billion after China's Finance Ministry announced a $69 billion recapitalization for four major state-owned banks, including Bank of Communications (BoCom). Following the capital injection, HSBC's stake in BoCom is expected to dilute from 19% to 16%, though CFO Pam Kaur emphasized it won't touch the bank's capital ratios. Despite the near-term accounting hit, management stressed that the move strengthens BoCom's CET1 ratio, positioning it to compete harder in a market still battling real estate woes and escalating US-China tensions.
Warning! GuruFocus has detected 2 Warning Sign with HSBC.
China's property sector slump and rising trade pressures continue to drag on the broader financial system, prompting Beijing to shore up its banking giants. BoCom posted a slim 0.9% profit growth last year, mainly driven by reduced credit impairment charges, even as net interest margins stayed under pressure. HSBC's CEO Georges Elhedery voiced support for the recapitalization, calling it a strategic positive that bolsters BoCom's ability to grow a critical move as asset quality risks across the Chinese banking sector remain stubbornly high.
Meanwhile, HSBC dropped stronger-than-expected Q1 numbers and rolled out a fresh $3 billion share buyback, aiming to steady investor nerves in a shaky market. Management also flagged that even under a scenario of sharply higher global tariffs, the direct hit to revenue would likely stay in the low single digits, with about $500 million in potential credit losses. Last year, HSBC already absorbed a $3 billion impairment tied to its original $1.75 billion investment in BoCom, underscoring the complex but enduring ties between Europe's biggest trade bank and China's evolving financial battlefield.
This article first appeared on GuruFocus.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
15 minutes ago
- Bloomberg
China's Short-End Bonds Rally Amid Debate on Likely PBOC Trading
China's short-end sovereign bonds rallied as heavy purchases by state banks spurred a debate among traders on whether the central bank was behind the move. Yields on China's one- and three-year bonds fell last week, nearing a four-month low. The moves were spurred by hefty purchases of short-term debt by state banks, which some saw as a sign that the central bank is back in the market after a five-month hiatus to ensure loose funding conditions.
15 minutes ago
China's exports climb 4.8% in May as shipments to the US fall nearly 10%
China's exports rose 4.8% in May from a year earlier, a bit lower than expected, as shipments to the United States fell nearly 10%, according to data released Monday just hours ahead of another round of trade talks between the U.S. and China. Imports declined 3.4% year-on-year, leaving a trade surplus of $103.2 billion. China exported $28.8 billion to the United States in May, while its imports from the U.S. fell 7.4% to $10.8 billion, the report said. Still, exports to Southeast Asia and the European Union remained robust, growing 14.8% and 12%, year-on-year. 'The acceleration of exports to other economies has helped China's exports remain relatively buoyant in the face of the trade war,' Lynne Song of ING Economics said in a commentary. Still, trade slowed in May from an 8.1% jump in China's global exports in April. Many businesses had rushed orders to try to beat higher tariffs, even as some new import duties took effect or remained in place. Exports will likely rebound somewhat in June thanks to a 90-day suspension of most of the tariffs China and the U.S. imposed on each other in their escalating trade war. 'But with tariffs likely to remain elevated and Chinese manufacturers facing broader constraints on their ability to sustain rapid gains in global market share, we think export growth will slow further by year-end,' Zichun Huang of Capital Economics said in a report. Despite the tariffs truce, the rancor between Beijing and Washington has persisted, with angry exchanges over advanced semiconductors, 'rare earths' that are vital to many industries and visas for Chinese students at American universities. The next round of negotiations was due to take place later Monday in London, following a phone call last week between Trump and Chinese leader Xi Jinping. Other data released Monday highlight the pressure on the world's second largest economy from slowing exports, since China imports many of the components and materials needed for the goods it assembles for the world. But at the same time, China's own domestic markets are suffering. The government reported that consumer prices fell 0.1% in May, evidence of sluggish demand. The persisting deflation partly reflects lower food prices, economists said. Producer price deflation was worse, contracting 3.3% in May, its lowest level in almost two years, after falling 2.7% in April.
Yahoo
16 minutes ago
- Yahoo
Exclusive-Shein and Reliance aim to sell India-made clothes abroad within a year, sources say
By Dhwani Pandya and Helen Reid MUMBAI/LONDON (Reuters) -Fashion retailer Shein and partner Reliance Retail plan to rapidly expand their Indian supplier base and start overseas sales of India-made Shein-branded clothes within six to 12 months, said two people with knowledge of the matter. The China-founded, Singapore-headquartered e-commerce firm has been discussing plans with the Indian retailer since before the U.S. imposed tariffs on Chinese imports that intensified the need to diversify sourcing, the people said. The aim is to raise Indian suppliers to 1,000 from 150 within a year, they said. In a statement to Reuters, Shein said it licensed its brand for use in India. Reliance did not respond to queries. Shein sells low-priced apparel such as $5 dresses and $10 jeans shipped directly from 7,000 suppliers in China to customers in around 150 countries. Its biggest market is the U.S. where it is adjusting to tariffs on low-value e-commerce packages from China which were previously imported duty free. The retailer launched in India in 2018 but its app was banned in 2020 as part of government action against China-linked firms amid border tension with its northeastern neighbour. It returned in February under a licensing deal with the Reliance Industries unit which launched selling Shein-branded clothes produced in local factories. In contrast, Shein's other websites mainly list goods from China. Reliance, controlled by Asia's richest person, Mukesh Ambani, has contracted 150 garment manufacturers and is in discussion with 400 more, said the two people, declining to be identified due to confidentiality concerns. The goal is 1,000 Indian factories making Shein-branded clothes within a year for both the Indian market and to service some of Shein's global websites, the people said. Shein initially wants to list India-made clothes on its U.S. and British websites, one of the people said. Discussions have been ongoing for months and the launch time of six to 12 months could change depending on supplier numbers, the person said. The scale of supplier expansion and export time frame is reported here for the first time. Shein has licensed its brand for domestic use to Reliance which "is responsible for manufacturing, supply chain, sales and operations in the Indian market," Shein said in a statement. In December, Minister of Commerce and Industry Piyush Goyal told parliament that the Shein-Reliance partnership aimed to create a network of Indian suppliers of Shein-branded clothes for sale "domestically and globally". ON-DEMAND MANUFACTURING Shein is a fast-fashion behemoth earning annual revenue of over $30 billion through low prices and aggressive marketing. Most of its products are from China with some made in countries such as Turkey and Brazil. Its expansion in India mirrors interest in the country from the likes of Walmart and others throughout the global fashion and retail industries, particularly those looking for suppliers outside China due to the Sino-U.S. trade war. The Shein India app has been downloaded 2.7 million times across Apple and Google Play stores, averaging 120% on-month growth, showed data from market intelligence firm Sensor Tower. Offerings during its first four months have reached 12,000 designs, a fraction of the 600,000 products on its U.S. site. In the women's dresses category, its cheapest item is priced 349 Indian rupees ($4) versus $3.39 on the U.S. site as of June 9. Shein's Indian partner Reliance, which operates the app, is working with suppliers to assess whether they can replicate Shein's global best-sellers at lower cost, the two people said. Reliance aims to emulate Shein's on-demand manufacturing model, asking suppliers to make as few as 100 pieces per design before increasing production of those that sell well, they said. Executives from Reliance recently visited China to understand Shein's "innovative" supply chain operations, "data driven" design processes and "disruptive" digital marketing, Manish Aziz, assistant vice president Shein India at Reliance Retail, said in a LinkedIn post in which he called Shein's scale and speed "truly incredible". The partnership is one of dozens Reliance has with fashion brands, such as Brooks Brothers and Marks and Spencer. The firm also runs e-commerce site Ajio and its retail network competes with Amazon and Walmart's Flipkart as well as value retailers such as Tata's Zudio. Reliance plans to work with new suppliers to source fabric - especially fabric made using synthetic fibres where India lacks expertise - and import required machinery, the people said. The firm will invest in suppliers and help them grow which in turn will help the Shein-Reliance partnership go global, they said. Sign in to access your portfolio
