HSBC Announces 76% Rise in 3Q Profit & $2 Bn Share Buyback

HSBC Announces 76% Rise in 3Q Profit & $2 Bn Share Buyback

HSBC on Monday in its third-quarter earnings posted a surprise 76 percent increase in the third-quarter profit as concerns about pandemic-related bad debts ebbed away, consequently announcing a share buyback of $2 billion.

“The lending market was softer than we anticipated in the quarter, particularly in corporate loans, but the pipelines that we built up, position us well for when companies start investing in both the recovery and the low carbon transition.” “On capital, as our revenue starts to normalize, we’ve also looked to normalize our capital position. Capital returns to shareholders will be a big component of this and I’m pleased to announce a share buyback of $2 billion, which we expect to start shortly,” said Noel Quinn, Group Chief Executive in Investor and Analysts Conference Call. 

The bank posted a pre-tax profit of $5.4 billion for the said quarter, up 76% from $3.1 billion in the prior-year period. The increase mainly came by a release of $0.7 bn to withstand expected credit losses and other credit impairment charges (‘ECL’). Analyst estimates compiled by the bank saw a 22.8% on-year jump in reported pre-tax profit to $3.776 billion.

The bank remained profitable across all regions in 3Q21, demonstrating continued earnings diversity. Asia contributed profit before tax of $3.3bn, while profit before tax reported in HSBC UK increased by $1.0bn to $1.5bn. The London headquartered bank’s shares in Hong Kong closed 0.43% higher on Monday.

Following the declaration, HSBC stock inched up as much as 1% during the pre-market trading session on October 25. The social engagement for the stock amongst the users of Twitter and Reddit on the dashboard of Quantale will be reflected as the day proceeds. 

The social engagement for the stock amongst the users of Twitter and Reddit fell 300% combined with a decline of about 5% in the trading volume on Friday, last week.  

The US Stock Market today for HSBC looks optimistic as the stock opened its intraday at $30.29, up $0.27 from its previous day close of $30.02.

HSBC Announces 76% Rise in 3Q Profit & $2 Bn Share Buyback

“While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us,” Noel Quinn, HSBC’s group chief executive, said in a statement accompanying the earnings release.

HSBC reported a rise of 1% in revenue to $12.0bn in the reporting quarter owing to favourable foreign currency translation movement. Analyst estimates compiled by HSBC expected a 3.1% on-year increase in revenue to $12.3 billion.

Adjusted revenue plummeted by 1% to $12.2bn, primarily due to adverse market conditions which impacted life insurance manufacturing in Wealth and Personal Banking (‘WPB’) and lower revenue in Markets and Securities Services (‘MSS’).

The bank reported a net release of $659 million of ECLs in the quarter corresponding to an $823 million charge in the prior year period.

“Despite the net releases, we continue to retain a conservative outlook on risk. We still hold $1.2 billion or 31% of our 2020 COVID-19 uplift to Stage 1 and 2 ECL reserves,” said Ewen Stevenson, Group Chief Financial Officer in Investor and Analysts Conference Call. 

The lender has around $1.2bn remaining of stage 1 and stage 2 ECL allowance uplift that it made during 2020.

For the first three quarters, the Londen based lender reported an increase of $7.5bn in profit after tax to $12.7bn and profit before tax rose $8.9bn to $16.2bn. 

The first nine months’ revenue tally declined 3% to $37.6bn, mainly because of 2020 interest rate reductions and lower revenue in MSS in Global Banking and Markets (‘GBM’). 

Key Highlights of bank’s third-quarter financial report card:

  • Net interest margin stood at 1.19% — compared with 1.2% in the second quarter.
  • Common equity tier 1 (‘CET1’) capital ratio was 15.9% for the said quarter, compared with 15.6% in the second quarter.
  • Basic earnings per share was 18 cents, whereas it came in at 17 cents in the second quarter and 7 cents in the third quarter of 2020.

HSBC did make any announcement for dividends for the quarter ended. However, it initiated a share buyback of up to $2 billion, which will commence “shortly.”

Ewen Stevenson, HSBC’s group chief financial officer, said the bank’s capital position is very strong, and it intends to reduce its capital ratio to around 14% to 14.5% by the end of 2022.