Downbeat debut for new HSBC boss as profits slip back

But John Flint sweetens the pill with announcement of £1.5bn share buyback

Banking giant HSBC unveiled a $2 billion (£1.5bn) share buyback yesterday alongside a surprise fall in first-quarter profits.

The London-based banking giant saw pre-tax profit slip 4 per cent to $4.8bn in the first three months of 2018 as higher costs more than eroded a slight increase in revenue.

HSBC had made a profit of $5bn in the same period of 2017. Net income came in at $3.1bn, little changed from the previous year.

More positively for shareholders,thelenderannounced that it will shortly start its latest share buyback – boosting the earnings and dividends attributable to the fewer shares left in circulation. The announcement by HSBC’S new chief executive, John Flint, follows $5.5bn worth of share repurchases by the bank over the past two years.

In 2017, HSBC paid more in dividends than any other major European or American bank.

Costs related to business investment and enhancing “digital capabilities” rose 13 per cent in Q1, internet banking being an increasing focus for all the major high street banks, which outstripped revenue growth of 5.5 per cent.

Flint, who said the latest share buyback was likely to be the only one this year, added: “We continue to benefit from interest rate rises and economic growth, particularly in Asia.”

He said that the bank’s “primary focus is to grow the businesses safely, and we have increased investment to deliver that aim”.

HSBC is Europe’s biggest bank, but earns most of its profits from Asia.

Last year, it completed a corporate overhaul to raise profitability by focusing more on high-growth Asian emerging markets while shedding businesses and workers in other countries.

Talking of the need for the new investment to drive growth, Flint said: “For us to get to a 10 per cent return on equity, we will have to grow the business, it’s very hard to get there just by shrinking the cost base.”

HSBC also took a surprise $897 million in provisions against expected settlements for past misconduct cases, which it said included a US department of justice (DOJ) probe into its sale of toxic mortgage-backed securities.

Charlie Huggins, manager of the Hargreaves Lansdown Select UK Income Shares fund, which holds shares in HSBC, said: “The increased investment for growth suggests that management are feeling more confident in their prospects.

“However, it will weigh on near term returns. HSBC’S vision is to become the premier bank for facilitating business between China and the rest of the world.

“Investment is being poured into China’s Pearl River delta region and early signs are encouraging.

“The vast expansion of Chinese infrastructure and industrial capacity seen in recent decades bodes well for the region’s future growth.”

mflanagan@scotsman.com