HSBC shares pop as bank beats profit estimates and launches $3bn buyback
HSBC has unveiled its latest multibillion-pound share buyback after beating profit estimates in the third quarter as the Asia-focused bank gears up for a major restructuring.
The announcement drove HSBC’s share price as much as 5.3 per cent higher in London and up 3.7 per cent in Hong Kong on Tuesday – with both at their highest level in around six years.
The London-based lender reported a pretax profit of $8.5bn (£6.6bn) between July and September, up from $7.7bn (£5.9bn) a year earlier. Analysts had expected a profit of $7.6bn (£5.9bn).
HSBC announced a $3bn (£2.3bn) share buyback and dividend of 10 cents (7.7p) per share to reward investors, bringing its total shareholder distributions to $18.4bn (£14.2bn) this year alone.
The results are the first under new chief executive Georges Elhedery, who took over from Noel Quinn at the start of September.
Elhedery has quickly made his mark at HSBC by announcing a major restructuring of its global operations designed to cut costs and home in on core divisions at Europe’s biggest bank.
The plans come as central banks worldwide have started to ease monetary policy, ending a massive earnings tailwind and squeezing margins at HSBC.
The bank’s net interest income (NII) – what it earns from loans minus what it pays on deposits – dropped to $7.6bn (£5.9bn) in the third quarter from $9.2bn (£7.1bn) a year earlier. Its NII also missed analysts’ estimates of $8.2bn (£6.3bn).
HSBC’s net interest margin, which measures lending profitability, fell to 1.46 per cent from 1.7 per cent year on year.
HSBC’s overhaul
Last week, Elhedery announced that HSBC would split into four new divisions from the start of next year.
This will include a merger of its global commercial and investment banking arms that is expected to involve job cuts among senior bankers as Elhedery looks to rein in expenses.
The bank’s operating costs rose slightly to $8.1bn (£6.2bn) in the third quarter from $8bn (£6.2bn) a year before.
HSBC’s third-quarter results were boosted by its less interest rate-sensitive wealth arm, which it said enjoyed higher private banking volumes in Asia.
In the three months, the bank’s overall fee income in wealth jumped 32 per cent, while it added 243,000 customers in Hong Kong.
The group is trying to plant its flag in wealth management as part of efforts to reduce its reliance on NII, which made up more than half of its revenue last year.
HSBC’s shares are up 15 per cent in London so far this year, although this lags behind the other Big Four UK banks.
Asia pivot
The bank set aside $1bn (£0.8bn) for bad loans, more than analysts’ expectations of $859m (£662m).
The provisions come as HSBC prepares for losses tied to Hong Kong and mainland China’s battered commercial real estate markets.
“We delivered another good quarter, which shows that our strategy is working,” Elhedery said on Tuesday. “There was strong revenue growth and good performances in wealth and wholesale transaction banking.”
As part of the new structure, HSBC’s new businesses will also be grouped within separate Eastern and Western geographical camps amid increasing tensions between China and the West.
The bank has sought to reduce its global footprint and focus on Asian markets in recent years, including selling operations in Canada, Argentina, and French and US retail banking.
Elhedery said on Tuesday that his strategy aims “to increase our leadership and market share in areas where we have competitive advantage, deliver best-in-class products and service excellence to our customers, and create a simpler, more dynamic, more agile organisation”.