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HSBC Q1 Earnings: What's in the Cards for the Stock?

HSBC Holdings plc HSBC is slated to report first-quarter 2016 results on May 3, before the market opens.

Last quarter, this foreign bank reported a loss owing to the continued revenue slump and increased loan impairment charges. However, lower fines and settlement charges as well as a decline in operating expenses acted as tailwinds.

So, what to expect from HSBC results this earnings season? Will the company again succumb to the revenue pressure or will its restructuring and cost-control efforts support the results? Let's see what factors might have affected the earnings in the first quarter.

Factors to Impact Q1 Results

HSBC continues to focus on its core operations, while divesting or closing the less profitable ones. Notably, the company is planning to restructure its Turkish operations after failing to find a suitable buyer for the same.

HSBC is trying hard to control expenses and improve efficiency. Driven by divestiture/closure of non-core operations, operating expenses should witness a downward trend. Nonetheless, increased risk, compliance and related costs, and an additional legal reserve are likely to somewhat mitigate this downtrend.

Additionally, slow economic recovery has forced the central banks of most countries to prioritize growth over inflation control. As a result, subdued interest income growth owing to a low rate environment might hamper HSBC’s top line in this quarter as well.

Further, substantial volatility in markets led to low level of client activity which should adversely impact the trading revenues. Also, investment banking income will likely be under pressure during the quarter.

Additionally, loan impairment charges and other credit risk provisions are expected to trend upward as continued global slowdown may lead to deterioration in asset quality.

HSBC currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked foreign banks include Banco Macro S.A. BMA, Westpac Banking Corp. WBK and Grupo Financiero Galicia S.A. GGAL. All these sport a Zacks Rank #1 (Strong Buy).

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