Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

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

Published 10/25/2021, 12:17 AM
Updated 10/25/2021, 05:50 AM
© Reuters. FILE PHOTO: A man wearing a protective mask walks past a logo of HSBC at its headquarters, amid the coronavirus disease (COVID-19) outbreak in Kuala Lumpur, Malaysia September 9, 2020. REUTERS/Lim Huey Teng/File Photo

© Reuters. FILE PHOTO: A man wearing a protective mask walks past a logo of HSBC at its headquarters, amid the coronavirus disease (COVID-19) outbreak in Kuala Lumpur, Malaysia September 9, 2020. REUTERS/Lim Huey Teng/File Photo

By Anshuman Daga and Lawrence White

SINGAPORE/LONDON (Reuters) - HSBC 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.

The British bank's profit growth was mainly driven by the release of cash reserves set aside in anticipation of pandemic-induced defaults, with HSBC's finance chief Ewen Stevenson telling Reuters that the worst of that impact is likely past.

"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.

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.

HSBC CEO 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.

The bank could spend up to $1.5 billion more on acquisitions in that business after buying insurer AXA's Singapore assets for $575 million in August, Stevenson said.

"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.

HSBC 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 HSBC.

Analysts at stockbrokers Goodbody said HSBC'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."

HSBC's London-listed shares rose 1% to their highest in four months.

INFLATION FEARS

Despite the overall positive results, HSBC 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.

Major companies worldwide have in recent weeks warned of the impact of rising costs driven by spiralling energy prices and supply chain disruption.

"A little bit of inflation is good for us as it should drive policy rates higher," Stevenson said.

"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.

Set against those concerns, HSBC 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.

INVESTMENT BANK

Another headache for HSBC is investment banking, where rivals such as Citigroup (NYSE:C) 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.

HSBC'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.

© Reuters. FILE PHOTO: A man wearing a protective mask walks past a logo of HSBC at its headquarters, amid the coronavirus disease (COVID-19) outbreak in Kuala Lumpur, Malaysia September 9, 2020. REUTERS/Lim Huey Teng/File Photo

It is the second big British bank to post strong quarterly results, after Barclays (LON:BARC) doubled profits on a strong performance by its investment bank advisory business.

HSBC's results will set expectations high for Standard Chartered (OTC:SCBFF), which focuses on similar markets and reports on Nov. 2.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.