HSBC profits beat expectations as it launches $3bn share buyback

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HSBC reported a rise in pre-tax profits for the third quarter of the year as growth in wealth management boosted its first results since Georges Elhedery took over as chief executive.

Pre-tax profits at the UK-based bank rose 10 per cent to $8.5bn from $7.7bn a year earlier, beating analysts’ expectations of $7.6bn.

The bank announced a share buyback of up to $3bn and a 10 cents a share interim dividend, bringing total distributions to shareholders, including buybacks and dividends, this year to $18.4bn.

The results show “our strategy is working”, said Elhedery, who took over last month and has embarked on a sweeping overhaul of Europe’s biggest bank by assets, announcing plans last week to reorganise it on east-west lines.

He said those plans “aim to increase our leadership and market share in areas where we have competitive advantage” and enable clearer accountability and faster decision-making.

HSBC, one of the world’s largest deposit-taking institutions, has been a beneficiary of higher interest rates in recent years, but it has been under pressure to cut costs and show it can still grow as the benefit of rising rates tails off.

Net interest income — which accounted for more than half of HSBC’s revenue last year — fell to $7.6bn in the third quarter, missing analysts’ estimates of $8.2bn. The figure had dropped 11 per cent in the second quarter of this year compared with a year earlier.

The bank’s net interest margin, a key measure of lending profitability, fell to 1.46 per cent from 1.7 per cent the same time last year.

But growth in its wealth business boosted the lender, as Elhedery works to reduce HSBC’s dependence on interest income. Global private banking revenues increased, with life insurance revenue more than doubling on a constant currency basis to $482mn over the past year.

The bank’s total costs rose to $8.1bn, up 2 per cent from a year ago, which it said was due partly to inflation and investments in technology. The bank has previously said it expects costs to rise about 5 per cent in 2024.

Cost-cutting has been one of Elhedery’s priorities so far. His planned overhaul of the bank’s operations will remove an expensive layer of management, though the bank has not said how many jobs will be lost and how much it expects to save.

Under the plans — which Elhedery has said will simplify the bank’s operations — the lender will go from three divisions to four, separating its Hong Kong business and its UK ringfenced bank into standalone units.

The other two divisions will be “corporate and institutional banking” and “international wealth and premier banking”. Within those, operations will fall either into an “eastern markets” section that covers Asia-Pacific and the Middle East or a “western markets” one covering the UK, Europe and the Americas.

The reorganisation comes as HSBC navigates a complex geopolitical backdrop of tensions between Beijing and Washington.

The bank is based in the UK, but Hong Kong is by far the biggest single source of its revenues, and it depends on the US for its dollar clearing licence. It has sold or made plans to sell several parts of its business in the west, including operations in Canada, Greece, US retail banking and Argentina.

The restructuring has reignited talk of a break-up of the group, which had died down after one of HSBC’s biggest shareholders, Chinese insurer Ping An, ended its campaign for the bank to split off its Asia operations.

The bank’s revenues, before accounting for changes in credit impairment charges, were $17bn, up from $16.2bn a year ago.

Its return on tangible equity, a measure of profitability, was 15.5 per cent for the first half of the year, down from 16.3 per cent three months earlier.

It made $1bn in provisions for bad loans, more than the $859mn analysts had expected, as it braced for losses linked to commercial real estate lending in Hong Kong and mainland China.

HSBC’s Hong Kong-listed shares rose more than 3 per cent on Tuesday.