The quarterly earnings season for the major European banks kicked-off on Tuesday, the 25th of October 2022, with UBS and HSBC releasing their results.

UBS, the Swiss banking giant reported net profit declined 24%, beating analysts’ expectations, helped by robust client inflows and lower costs, which smoothed the impact of the tough macro-economic environment.

HSBC, the London-headquartered and Europe’s largest bank, reported that pre-tax profit of $3.15 billion in Q3 2022 was down 42% from $5.4 billion in Q3 2021, but above analysts’ expectations of $2.45 billion.

Net profit has plunged to $1.91 billion, ahead of analysts’ expectations of $1.15 billion. Net profit decreased due to rising credit losses and impairments, even as its net interest income (NII) jumped 30% to $8.6 billion helped by rising borrowing costs globally.

Reported revenue in Q3 fell 3% to $11.6 billion, primarily reflecting an impairment on the planned disposal of its retail banking operations in France, as well as an adverse foreign currency translation impact of $1 billion.

The figures were significantly skewed by two large provisions that completely changed the quarterly result. The bank recorded a $2.4 billion impairment after the reclassification of its retail banking operations in France ahead of the sale of that business, as well as a net charge for expected credit losses and other credit impairment charges, compared with a net release of 1.7 billion in 2021.

However, the adjusted numbers reveal a completely different picture, with adjusted pre-tax profit rising by 18% to $6.5 billion and revenues by 28% to $14.3 billion, which shows that the underlying business remains in a good shape.

NII increased in all the bank’s businesses globally due to interest rate rises. NII measures what the bank makes from lending minus interest paid on deposits. NII rose to $8.58 billion from $6.6 billion, exceeding analyst’s expectations of $8.2 billion, and posted its best third quarter in more than eight years. Net interest margin (NIM) has increased to 1.57% climbing 22 basis points from Q2 2022.

Costs remain relatively contained against an increasingly tough macro environment, with the cost/income ratio rising to 68.7% from 66.5%, while the provisions have also fed through and shaved the CET1 ratio, to 13.4% from 13.6% in Q2 2022. The bank said that it needs to boost its core capital level of 13.4% back above 14% before it can resume buybacks and dividends. Noel Quinn Group Chief Executive is “very confident” HSBC could get the ratio above 14% by the first half of 2023, by increasing revenue and managing costs.

Quinn also said: “We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders.”

The bank said its outlook on revenue remained “positive”. It upgraded its net interest income guidance for 2022 to $32 billion, based on the current market consensus for global central bank rates. For 2023, HSBC expects net interest income of at least $36 billion, a reduction from the guidance of at least $37 billion, which reflects the impact of the pound’s depreciation against the U.S. dollar and a higher cost of funding.