This content is not available in your region

HSBC rides out China property storm with 74% profit jump, $2 billion buyback

Access to the comments Comments
By Reuters
HSBC surprises with 74% rise in Q3 profit and $2 billion buyback
HSBC surprises with 74% rise in Q3 profit and $2 billion buyback   -   Copyright  Thomson Reuters 2021   -  

<div> <p>By Anshuman Daga and Lawrence White</p> <p><span class="caps">SINGAPORE</span>/LONDON – <span class="caps">HSBC</span> shrugged off concerns about pandemic-related bad loans and property problems in China on Monday with a surprise 74% quarterly profit jump and a $2 billion share buyback.</p> <p>The British bank’s profit growth was mainly driven by the release of cash reserves set aside in anticipation of pandemic-induced defaults, with <span class="caps">HSBC</span>’s finance chief Ewen Stevenson telling Reuters that the worst of that impact is likely past.</p> <p>“You should also look at the buyback as a measure of the confidence that we have at the moment that we are not unduly concerned about our exposures in China,” Stevenson said.</p> <p>The Asia-focused bank said it had $19.6 billion in lending to China’s property sector, where China Evergrande Group is grappling with a $300 billion debt pile, stoking fears of further defaults and contagion risks.</p> <p><span class="caps">HSBC</span> <span class="caps">CEO</span> Noel Quinn, who was confirmed in the role in 2020 just as the pandemic-induced economic crisis began, is betting on Asia to drive growth, by moving global executives there and ploughing billions into lucrative wealth management. </p> <p>The bank could spend up to $1.5 billion more on acquisitions in that business after buying insurer <span class="caps">AXA</span>’s Singapore assets for $575 million in August, Stevenson said.</p> <p>“While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us,” Quinn said in a statement.</p> <p><span class="caps">HSBC</span> posted pretax profit of $5.4 billion for the quarter to September, versus $3.1 billion a year earlier and the $3.78 billion average estimate of 14 analysts compiled by <span class="caps">HSBC</span>.</p> <p>Analysts at stockbrokers Goodbody said <span class="caps">HSBC</span>’s revenue guidance and the reversal of expected credit losses “should drive earnings upgrades while the capital beat and the $2bn buyback will be pleasing to investors.”</p> <p><span class="caps">HSBC</span>’s London-listed shares rose 1% to their highest in four months. </p> <p><span class="caps">INFLATION</span> <span class="caps">FEARS</span></p> <p>Despite the overall positive results, <span class="caps">HSBC</span> said its cost projections for 2022 had risen to $32 billion from $31 billion, due to global inflation pressures which would push up its $19 billion wage bill. </p> <p>Major companies worldwide have in recent weeks warned of the impact of rising costs driven by spiralling energy prices and supply chain disruption.</p> <p>“A little bit of inflation is good for us as it should drive policy rates higher,” Stevenson said. </p> <p>“However, we have a cost base of $32 billion of which $19 billion is compensation… so it doesn’t take much (to push up costs), 2 or 3% inflation on the cost base is $400 to $600 million of additional costs,” he added.</p> <p>Set against those concerns, <span class="caps">HSBC</span> released $700 million in cash it had put aside in case pandemic-related bad loans spiked, as opposed to the same time a year earlier when it took an $800 million charge. </p> <p><span class="caps">INVESTMENT</span> <span class="caps">BANK</span></p> <p>Another headache for <span class="caps">HSBC</span> is investment banking, where rivals such as Citigroup are riding an M&A boom https://www.reuters.com/world/us/us-banks-beat-profit-estimates-economic-rebound-red-hot-markets-2021-10-14 to record-beating profits.</p> <p><span class="caps">HSBC</span>’s investment bank saw income fall this year as it paid the price for its bias towards debt markets, which have been patchy amid low interest rates that crimped trading, while rivals’ equities and merger-focused businesses have thrived.</p> <p>It is the second big British bank to post strong quarterly results, after Barclays doubled profits on a strong performance by its investment bank advisory business.</p> <p><span class="caps">HSBC</span>’s results will set expectations high for Standard Chartered, which focuses on similar markets and reports on Nov. 2.</p> <p/> </div>