HSBC Unveils $3 Bn Share Buyback Programme Despite Profit Shortfall

HSBC Holdings Plc, the largest bank in Europe by assets, has announced a fresh share buyback program and suggested additional returns for investors, despite falling short of market expectations in its third-quarter profits. The bank is navigating a complex economic landscape, including changes in China's real estate market.

HSBC's new programme involves the repurchase of an additional USD 3 billion worth of its own shares, bringing the total buybacks for the year to USD 7 billion. In an interview to a media house, CEO Noel Quinn hinted at the possibility of further returns for investors, underlining the bank's strong capital generation and its commitment to rewarding loyal shareholders.

However, the bank reported a third-quarter pretax profit of USD 7.7 billion, which did not meet the analyst consensus of USD 8.1 billion. This was partially due to a USD 600 million charge linked to the bank's hedging strategy. Despite this setback, Quinn emphasised that this charge would benefit the bank in the coming quarters.

Operating expenses saw a 2 per cent year-on-year increase, driven in part by planned pay raises for certain employees and higher technology spending. HSBC adjusted its 2023 cost growth target to approximately 4 per cent, up from the previous goal of about 3 per cent.

HSBC, with a primary focus on the Asian market, delivered a strong performance in the region, particularly in Hong Kong. The bank also announced its acquisition of Citigroup Inc.'s retail wealth management portfolio in mainland China, which added around USD 3.6 billion in assets and deposits.

The bank does face challenges, particularly in the face of slower growth in China and a downturn in the real estate market. HSBC's loan loss provision for the quarter stood at USD 1.1 billion, with half of this linked to China's commercial real estate sector. Quinn acknowledged that the Chinese property market has experienced a "significant policy correction" but anticipates a gradual recovery over the next year.

Despite these challenges, HSBC maintains its target for mid-teens growth in its return on tangible equity and expects net interest income to surpass USD 35 billion this year. The bank's outlook for expected credit losses remains unchanged.

In the quarter ending in September, HSBC reported a post-tax profit of USD 6.26 billion, marking a significant 235 per cent increase compared to the same period in the previous year. The pre-tax profit for the quarter also saw a substantial increase of per cent 4.5 billion to reach USD 7.7 billion, primarily driven by a higher interest rate environment.

Nonetheless, these figures fell short of economists' expectations. Analysts had predicted a third-quarter post-tax profit of USD 6.42 billion and a pre-tax profit of $8.1 billion. The bank attributed this variance in part to a USD 2.3 billion impairment recorded in the third quarter of 2022, related to the planned sale of its retail banking operations in France. Of this, USD 2.1 billion was reversed in the first quarter of 2023, as the transaction's completion became less certain.