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HSBC Announces $3bn Share Buyback and Doubles Q3 Profit, but Falls Short of Expectations

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HSBC, Europe’s largest bank, has announced a $3 billion share buyback and reported a more than doubling of its third-quarter profit. However, the results fell short of expectations as rising costs due to increased wages and technology spending pushed expenses above forecasts.

The bank’s pre-tax profit for the July to September quarter was $7.7 billion, compared to $3.2 billion in the same period last year. Despite this significant increase, the figure was lower than the $8.1 billion mean average estimate compiled by HSBC. Jefferies analyst Joe Dickerson noted that costs are likely to be a point of controversy, although the $1 billion larger share buyback exceeded his forecast.

HSBC aims to complete the share buyback by February 2022, bringing the total buybacks announced this year to $7 billion. The bank also declared a third interim dividend of 10 cents per share, resulting in a total annual payout of 30 cents per share so far.

Shares of HSBC in London rose by 1% in early trading on Monday, in line with the benchmark FTSE 100 index. However, its Hong Kong-listed shares fell by 1.46%, underperforming the wider financial index.

The bank also booked a $500 million impairment related to China’s commercial real estate sector in mainland China during the third quarter. HSBC’s Chief Executive, Noel Quinn, stated that he believed the worst is likely over for the troubled sector, but CFO Georges Elhedery cautioned that a couple of quarters of difficulty are still expected as the sector adjusts.

In terms of revenue, HSBC’s Global Banking and Markets division, which includes its investment bank, reported a 2% rise in the third quarter. This outperformed rival Barclays, which experienced a 6% drop. HSBC’s wealth business, which is a key area for growth, attracted $34 billion of net new invested assets in the quarter, and revenues have grown by 12% so far this year.

HSBC’s overall net interest margin decreased by 2 basis points to 1.70% compared to the previous quarter. This was due to customers shifting their deposits to term products, particularly in Asia. Furthermore, foreign banks in China, including HSBC, have been affected by the government-led move to lower mortgage rates, which has impacted local lenders.

HSBC’s results follow those of its Asia-focused competitor, Standard Chartered, which reported an unexpected one-third plunge in third-quarter profit due to its exposure to China’s real estate and banking sectors.

Overall, HSBC’s results highlight the challenges the bank faces in delivering consistent returns to its investors amidst rising interest rates worldwide. The bank continues to explore avenues for growth, particularly in its wealth business, but remains cautious about the commercial real estate sector in mainland China.

More detail via The Hans India here… ( Image via The Hans India )

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