London (Parliament Politic Magazine) – HSBC to Distribute Over $3 Billion to Shareholders as Quarterly Profits Soar Amidst Higher Interest Rates, Despite China’s Property Crisis Impact
HSBC, headquartered in London, has announced its plans for a share buyback exceeding $3 billion (£2.5 billion) and a dividend payout of 10 cents per share. This comes as the bank’s Chief Executive, Noel Quinn, celebrated “three consecutive quarters of robust financial performance.”
Consumer-Facing Businesses Face Risk, but HSBC Sees Resilience Amid Inflation
During the period from July to September, HSBC reported pre-tax profits of $7.7 billion, slightly below analyst expectations of $8.1 billion but more than double the $3.2 billion earned in the same period the previous year.
These remarkable profits were underpinned by a 15% surge in net interest income, amounting to $9.2 billion. This increase is attributed to rising interest rates, despite the financial challenges posed by China’s property crisis.
The $1.1 billion set aside by HSBC to cover potential defaults helped counterbalance the financial impact. This provision encompasses $500 million tied to China’s struggling commercial property market, to which HSBC, a bank predominantly profiting from its Asian operations, has an exposure of $13.6 billion.
HSBC’s leadership expressed the view that, while the Chinese property market is unlikely to deteriorate significantly, the recovery process will be gradual.
Georges Elhedery, the Chief Financial Officer, stated, “The developments over the summer have proven to be somewhat more challenging than our earlier-year projections following the Covid lockdown. Looking ahead, we anticipate a couple of quarters of continued difficulty as the sector adapts. We are encouraged by the ongoing policy measures aimed at alleviating pressure on the sector and helping it navigate through this challenge.”
HSBC’s UK Business Thrives: 63% Jump in Pre-Tax Profits Amid Cost of Living Crisis
HSBC’s shares initially rose by 1.1% on Monday morning but later declined by 0.8% compared to the previous Friday’s closing price. This development follows Standard Chartered’s shares plummeting over 11% in recent days due to a more than 50% reduction in its pre-tax profits, primarily attributed to its exposure to China.
HSBC expressed optimism regarding the outlook for its UK operations, where pre-tax profits surged by 63% to $1.8 billion, benefiting from a 20% increase in revenues and a reduction in provisions for potential defaults.
“We are delighted to observe the remarkable resilience of the UK economy over recent quarters and anticipate continued strength,” Elhedery remarked. “Naturally, we will closely monitor metrics such as unemployment and inflation as indicators of our performance, but we are quite satisfied with the current state of affairs.
Amid the cost of living crisis, a small fraction of HSBC’s mortgage customers chose to utilize forbearance options for their home loans. The finance chief noted that this represented a minority, accounting for less than 0.3% of the bank’s UK customer base.
HSBC Maintains Positive Market Perception, Sticks to Performance Targets
Regarding its commercial bank, Elhedery emphasized that consumer-facing businesses were currently at the highest risk, as consumer spending on non-essential items had decreased due to inflation. However, he noted, “At this point, except for a few isolated cases, we have not observed a decline in this sector.”
In total, HSBC allocated $58 million to protect itself against potential loan defaults within its UK business, a significant reduction from the $279 million set aside the previous year.
Russ Mould, the investment director at AJ Bell, stated, “HSBC is currently viewed more favorably by the market than its competitors, and it’s noteworthy that the bank is maintaining its return on equity targets for 2023 and 2024.
Given the challenges faced by the Chinese economy in 2023, which is a crucial market for HSBC, the bank’s performance has been impressive. To sustain this, CEO Noel Quinn’s assertion that China’s commercial property market has reached its lowest point will need to be accurate.”
Quinn, who earlier in the year rejected proposals from its largest shareholder, Ping An, to spin off the Asian business, mentioned that HSBC’s strong financial position was attracting new investors. In March, HSBC acquired Silicon Valley Bank’s UK operations for £1 in a rescue deal for the benefit of British tech startups.