HSBC announced its second $2bn share purchase of the year, after rising interest rates led to a bumper quarterly profit of $8.8bn. This strengthened the hands of executives against an activist campaign by Ping An, its largest shareholder.
The UK-based Bank announced on Tuesday that its second-quarter profits before taxes were up 89 percent from the same time last year. This was well above analyst expectations of $8bn. Revenue grew 38 percent to $16.7bn. This exceeded analyst expectations of $16bn.
Performance was driven largely by the rising interest rates in UK and US. This helped boost earnings, even though growth in its biggest markets, Hong Kong, and mainland China, slowed. The bank increased its revenue and profitability targets for this coming year.
Noel Quinn, the chief executive of HSBC, said HSBC generated “good profits all over the world”. . . “which] provides tangible proof that the strategy is effective”.
HSBC increased payouts to its investors and closed businesses that were underperforming in several countries, after being pressured by Chinese insurer Ping An to split up last year. The 2bn announced in the first quarter is now augmented by the buyback announced Tuesday. The bank announced a 10 cent dividend per share.
About 80 percent of Ping An shareholders voted in May to reject the proposed division of its global operations between eastern and western units. The Chinese insurer argued that this would increase returns and assist HSBC with China-US trade tensions.
Quinn stated that he spoke to Ping An after the annual meeting, but “moved forward” and is now focused on the execution of the decision.
These figures show how the rapid rise in interest rates by central banks is boosting the performance of lenders. Banks are making profits on the difference between interest they earn from lending and interest they pay to depositors.
Standard Chartered , a rival bank, reported results that were better than expected last week. HSBC, one of the largest deposit-taking banks in the world with assets totaling $3tn, is especially sensitive to interest rate changes.
HSBC has said that it expects to incur credit losses of $900mn, which includes charges relating to commercial real estate in China. It is exposed to $14.3bn. Quinn stated that Chinese commercial real estate “is still experiencing some difficult times”. It will depend on the return of customer demand to that sector.
The chief executive said that China’s growth has undershot his expectations. He described it as “patchy”, and predicted that returning to sustained growth will take “longer” than everyone expected.
The Bank of England is pressuring HSBC in the UK and other lenders to give higher interest rates to saving customers, and to help those who are struggling to pay escalating mortgages, which may reduce the banks’ net margin.
HSBC shares climbed 2.8% in London, bringing their total gain for the year up to 25%. “Overall positive results, an encouraging buyback update and a positive outlook.” Citigroup analyst Andrew Coombs said that this should be taken seriously.
Net interest margin, a key measure of lending profitability, rose from 1.69 percent in the first quarter of the year to 1.72 percent in the second. This was higher than the expected 1.66 percent. The net interest margin for HSBC UK ringfenced was 2,49%, which is much higher than its Hong Kong entity’s 1,83%.
In June, HSBC reached a new agreement for the sale of its French retail bank network to a US private equity company Cerberus.
After rising interest rates, the US private equity buyer had to increase their investment.
HSBC also plans to exit many of its operations, including in Oman and New Zealand. The $10bn sale, which will close early next, is still on schedule.
The results were announced a week after NatWest’s chief executive Alison Rose resigned following her admission of having misled a reporter about the reason Coutts Private Banking, its private banking division, had closed Nigel Farage’s bank account.
Quinn, when asked about Rose’s departure, said that Rose “contributed strongly” to the industry-wide discussions and the Farage fiasco was a “very difficult time for her personally”.