High interest rates help double HSBC profits
HSBC will hand more than $3bn (£2.5bn) to shareholders, after higher interest rates helped to more than double quarterly profits, despite taking a financial hit on China’s property crisis.
The London-headquartered bank said it was launching the share buyback, and paying a dividend worth 10 cents a share, after what its chief executive, Noel Quinn, hailed as “three consecutive quarters of strong financial performance”.
HSBC revealed it had made $7.7bn in pre-tax profits between July and September. While it fell short of analyst forecasts for $8.1bn, it was more than double the $3.2bn the bank made during the same period last year.
The profits were supported by a 15% rise in net interest income – which accounts for the difference between what it charges for loans and mortgages, against what it pays out to savers – to $9.2bn, amid rising interest rates.
It helped offset the $1.1bn that HSBC put aside to cover potential defaults. That includes $500m linked to China’s struggling commercial property market, where HSBC – which makes the bulk of its profits in Asia – has a $13.6bn exposure.
HSBC bosses said that while the Chinese property market was unlikely to get much worse, the recovery process would be slow.
“The summer developments have been somewhat worse than we anticipated earlier in the year, right after the Covid lockdown,” the chief financial officer, Georges Elhedery, said.
“Looking forward, I think we are expecting still a couple of quarters of difficulty as the sector adjusts. We are definitely encouraged by the ongoing policy measures that have been taken to ease the pressure on the sector, and to allow it to get through this challenge.”
HSBC’s shares initially rose by 1.1% on Monday morning, before later falling by 0.8% compared with Friday’s closing price.
It comes days after shares in banking rival Standard Chartered tumbled more than 11% on news that its pre-tax profits more than halved because of its exposure to China.
HSBC was positive about prospects for its UK business, which reported a 63% jump in pre-tax profits to $1.8bn, thanks to a 20% rise in revenues and a drop in the amount of money put aside for potential defaults.
“We’ve been really pleased to see the real resilience of the UK economy over the last few quarters and continue to anticipate resilience in the economy,” Elhedery said. “Obviously we’ll continue watching figures such as unemployment and inflation, as an indicator of how we will fare, but we’re very pleased.”
Some of HSBC’s mortgage customers were taking advantage of forbearance offers on home loans amid the cost of living crisis, but the finance chief said this accounted for less than 0.3% of its UK customer base.
Across its commercial bank, Elhedery said consumer-facing businesses “pose the highest risk”, since shoppers had started to spend less on non-essential items due to inflation. “But I have to say, at this stage, that apart from, idiosyncratically, a few names, we have not seen deterioration in the sector.”
In total, HSBC put aside $58m to cushion itself against loans that could go sour in its UK business, but that was down significantly from the $279m it put aside a year earlier.
Russ Mould, the investment director at AJ Bell, said: “For now, HSBC, whose horizons go far beyond the UK, is seen in a much better light by the market than its rivals and it is notable to see it sticking with its return on equity targets for 2023 and 2024.
“Given the difficulties faced by the Chinese economy in 2023, a key market for HSBC, its level of performance has been impressive. To sustain this, CEO Noel Quinn’s observation that China’s commercial property market has bottomed out will have to prove accurate.”
Quinn, who earlier this year quashed proposals by its largest shareholder, Ping An, to spin off the Asian business, said new investors were being drawn to HSBC as a result of its strong financial position.
In March, HSBC snapped up Silicon Valley Bank’s UK operations for £1 in a rescue deal for the lender to British tech startups.