HSBC, Europe’s largest bank, unveiled a $3 billion share buyback program on Monday, along with third-quarter profit figures that, despite more than doubling year-on-year, fell short of market expectations due to mounting technology and operational expenses, as well as inflation-driven wage pressures.
The financial results underscore the increasing pressure on the bank to deliver satisfactory returns to its long-suffering investors amidst a backdrop of rising global interest rates.
HSBC signaled a potential cost increase of up to 5% this year, excluding any acquisitions, surpassing its previous target of a 3% rise. This upward cost trajectory is attributed to elevated technology and operational spending, as well as deliberations about boosting staff bonuses in the fourth quarter.
For the July to September quarter, HSBC reported a pre-tax profit of $7.7 billion, a substantial improvement from the $3.2 billion recorded during the same period the previous year. However, the figure fell short of the $8.1 billion mean average estimate compiled by brokers associated with HSBC.
Regarding the results, Joe Dickerson, an analyst at Jefferies in London, noted, “HSBC’s profit was below expectations, and costs are likely to be the area of controversy.” He added that the announced $3 billion share buyback was $1 billion more than his initial forecast.
The London-based bank, with a market value of $118.6 billion, outlined its intention to complete the share buyback by February of the coming year. This announcement brings the total buybacks declared in 2023 to $7 billion. Additionally, the bank distributed its third interim dividend payout of 10 cents per share, making the total payout for the year reach 30 cents per share.
Following the release of the earnings report, HSBC’s Hong Kong-listed shares declined by 0.26%. This reduction was an improvement over the earlier 2.1% loss experienced in the morning session, and the bank outperformed the broader financial index, which had fallen by 1.21%.
In the Global Banking and Markets division, which houses its investment bank, HSBC reported a 2% increase in third-quarter revenues, a more resilient performance compared to Barclays, which saw a 6% decline. HSBC’s substantial payments business benefited from the rise in interest rates.
The bank also saw positive momentum in its wealth business, attracting $34 billion in net new invested assets during the quarter. The wealth balance sheet expanded by 12% in comparison to the previous year.
However, HSBC’s net interest margin was squeezed, declining by 2 basis points in the third quarter, a reflection of customers shifting their deposits toward term products, particularly in Asia.
In its third-quarter results, the bank recorded a $500 million impairment related to the commercial real estate sector in mainland China. HSBC remains cautious about its exposures in mainland China’s commercial real estate sector and highlighted uncertainties in the economic outlook, especially in the UK.
HSBC’s Asia-focused rival, Standard Chartered, reported an unexpected one-third drop in third-quarter profit last week, primarily due to a combined hit of nearly $1 billion stemming from its exposure to China’s real estate and banking sectors.
