HSBC unveils $3bn in share buybacks despite lower than expected profits

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HSBC has announced up to $3bn in additional share buybacks, taking total buybacks to $7bn this year, as the bank said higher interest rates were continuing to boost its growth.

The move came even as the London-listed lender on Monday reported lower than expected profits for the three months to September. Pre-tax profits were $7.7bn, less than the $8.1bn analysts had estimated, though far higher than the $3.2bn figure a year earlier.

“We have had three consecutive quarters of strong financial performance,” said chief executive Noel Quinn, adding that the bank’s “good broad-based growth” was “supported by the interest rate environment”. HSBC also announced a quarterly dividend of 10 cents a share, its third of that amount this year.

HSBC, one of the world’s largest deposit-taking institutions, has been a big winner from higher interest rates, which have helped it earn more on the difference between what it pays on deposits and what it charges to lend.

The boost to its performance has helped it hand a series of payouts to shareholders, including two $2bn share buybacks this year, at a time when it has been embroiled in a battle with its largest shareholder Ping An.

The Chinese insurer has been pressing for HSBC to be separated into eastern and western units, though shareholders in May rejected a Ping An-backed split proposal at the bank’s annual meeting. Quinn said in August that he had “moved on” from the battle.

Shares in HSBC fell 0.2 per cent in early afternoon trading in Hong Kong following the results announcement.

“After you do several rounds of share buybacks, the impact of doing more starts to diminish,” said Dickie Wong, head of research at Hong Kong-based Kingston Securities. “While HSBC is doing relatively well in terms of earnings, market sentiment is very weak.”

The bank is listed in the UK and Hong Kong and makes the lion’s share of its profits in Asia. It has increased its presence in China, agreeing this month to buy Citi’s wealth management business in the country as it seeks to become Asia’s biggest wealth manager.

The bank made $1.1bn in provisions for potential loan losses, of which $500mn related to commercial property in mainland China, where it has $13.6bn in total exposure.

“We continue to monitor risks related to our exposures in mainland China’s commercial real estate sector closely,” it said.

Last week, its smaller rival Standard Chartered announced higher than expected loan loss provisions, largely due to its China exposure, causing its shares to tumble.

HSBC announced revenues of $16.2bn, in line with analysts’ expectations and above its $11.5bn revenues a year earlier.

Higher rates helped European lenders Deutsche Bank, Lloyds Banking Group and Santander report better than expected profits last week. But signs are emerging that the boost to banks from higher rates has started to wane.

HSBC’s net interest margin, a crucial measure of lending profitability, fell to 1.7 per cent, down two basis points from the previous quarter. The bank said this was because some customers, especially in Asia, were choosing to lock their money away in term deposits in order to get higher interest payments.

Lloyds said last week that its net interest margin fell, while JPMorgan and Wells Fargo said this month that if interest rates remained high, they would have to raise the amount of interest being paid on deposits more quickly, which would eat into interest income.