Transcript: HSBC profits nosedive

This is an audio transcript of the FT News Briefing podcast episode: ‘HSBC profits nosedive’

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Sonja Hutson
Good morning from the Financial Times. Today is Thursday, February 22nd and this is your FT News Briefing.

Nvidia had another stellar quarter. And China is causing problems for HSBC’s bottom line. Plus, Indonesia has picked a new president and some people are worried he’ll hurt the country’s democracy. I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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Nvidia had a crazy good fourth quarter. The chipmaker reported yesterday that its net income rose almost 800 per cent. Yeah, you heard that right — 800 per cent compared to the same quarter in the previous year. Nvidia benefited from a spending frenzy on artificial intelligence. Its chips are used to create the large language models for AI. So they’re basically the hottest commodity in Silicon Valley right now. Investors were pretty happy about this. The shares jumped 10 per cent in after-hours trading.

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HSBC reported an 80 per cent drop in profits last quarter. The bank took a big hit in China at the end of last year, and it’s not the only western lender that’s struggling there. To tell us more about what’s going on, I’m joined by the FT’s Asia financial correspondent, Kaye Wiggins. Hey, Kaye. 

Kaye Wiggins
Hi, Sonja. 

Sonja Hutson
So Kaye, this is a huge drop in profits. What happened? 

Kaye Wiggins
Yeah. So for the fourth quarter of 2023, this is a massive decline. Largely what happened was that HSBC had to take this huge kind of $3bn impairment on the value of a stake that they own in a Chinese state-backed bank called Bank of Communications. So HSBC owns 19 per cent of this bank, and they are now saying they’ve had to rethink how much that might be worth. They’ve also had to write down the value of their investments that they’ve made in commercial real estate in China. So this quarter, that’s slightly less of an issue than the stake they had in the Bank of Communications. But there is also an extra writedown related to the commercial real estate. Yeah. 

Sonja Hutson
Yeah. So given that HSBC’s problems last quarter were really centred in China, what does that tell us about the country’s economy more broadly? 

Kaye Wiggins
The HSBC certainly say that they are still confident in China’s economy. We spoke to Noel Quinn, the chief executive of HSBC. He said that he’s still confident in the future of economic growth in China. He pointed out that, you know, results for the full year actually increased and said that he’s pleased with these earnings. But one thing that’s really worth noting is that this is the second time recently that a UK bank has had to significantly write down the value of its stake in a mainland Chinese bank. So it certainly seems like there’s a bit of a trend here. 

Sonja Hutson
Yeah. What are other banks thinking when they see HSBC’s earnings report? Are they reconsidering things in China? 

Kaye Wiggins
Yeah. So there’s no evidence as yet that just purely off the back of these earnings that other banks are rethinking. But certainly there are multiple reasons to be cautious about China right now for international banks. Obviously China is going through a property crisis. There is an economic slowdown. There’s also the fact that China has reported foreign direct investment at its lowest level since the 1990s. So all that, plus the kind of geopolitical tension that’s still simmering, means that, you know, you can understand why the western banks might see this as a less attractive market than they once did. 

Sonja Hutson
Kaye Wiggins is the FT’s Asia financial correspondent. Thanks, Kaye. 

Kaye Wiggins
Thanks. 

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Sonja Hutson
Boeing has ousted the head of its 737 Max program. The company announced yesterday that Ed Clark is leaving after two decades. Clark oversaw the style of jet involved in that incident last month, where a door plug fell off in the middle of a flight. US federal regulators grounded the planes and are currently auditing the manufacturing process. Boeing also announced a new position yesterday: senior vice-president for quality. The company says the leadership shuffle is meant to increase its focus on safety.

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Indonesia is one of the most successful economies in south-east Asia. It’s enjoyed a long period of peace and prosperity under President Joko Widodo, but he’s leaving office in October. And people are worried about what his successor, Prabowo Subianto, will mean for the country’s democracy. The two men were actually bitter rivals until Prabowo was brought into the government to serve as defence minister in 2019. 

A. Anantha Lakshmi
Prabowo is a well-known figure in Indonesian politics. He has been for decades trying to become Indonesia’s president. 

Sonja Hutson
That’s Anantha Lakshmi, the FT’s correspondent in Jakarta. 

A. Anantha Lakshmi
This time he won because mainly he had the backing of Widodo. Widodo is extremely popular and his popularity ratings are close to 80 per cent, even at the tail-end of his term. Even though Jokowi, as the president is known, did not officially endorse Prabowo, he had well-publicised dinners and meetings that made it clear who he was backing. And it also helped that Jokowi’s son was Prabowo’s vice-presidential candidate. 

Sonja Hutson
Prabowo was commander of Indonesia’s special forces in the 1990s. That was a time when many pro-democracy activists were kidnapped, and a lot of them are still missing today. Some Indonesians haven’t forgotten that. 

A. Anantha Lakshmi
There are certainly concerns among some sections of the Indonesian public about the future of Indonesia’s young and hard-fought democracy. Prabowo has also made some comments in the past, in 2014, about how elections are too expensive and that he may want to scrap direct presidential elections. So there are some concerns that there could be a threat to the democracy. But one of the current ministers who has been campaigning with Prabowo told us that democracy will not be set back under Prabowo, as there are enough checks and balances in Indonesia. 

Sonja Hutson
Anantha says Prabowo has also changed his campaign strategy since his previous two runs for president. 

A. Anantha Lakshmi
In the last two campaigns, Prabowo came across as a temperamental, nationalistic politician with strongman tendencies. But this time he’s really turned his image around. He has portrayed himself as this cute, grandfatherly figure, dancing awkwardly at rallies and posting pictures of his cat on Instagram. He’s also been very prominent on TikTok, more than any of the other two candidates. So all that helped soften his image and really expand his appeal. 

Sonja Hutson
President Jokowi has overseen a period of strong growth and investment in Indonesia. So the big question is: will that success continue under Prabowo? 

A. Anantha Lakshmi
Prabowo has promised to retain business-friendly policies that have helped attract foreign investors to Indonesia. He’s also vote to develop the commodities sector further, including the nickel industry, which is critical to the electric vehicle ecosystem that Indonesia wants to develop. But economists also suspect that there will be some populist policies that he introduces. One of his key campaign pledges has been to introduce free meals and milk for students across the country. That is expected to cost nearly $30bn and weigh on government finances and the fiscal strength that Jokowi has built for Indonesia. 

Sonja Hutson
Anantha Lakshmi is the FT’s correspondent in Jakarta.

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You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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