HSBC to launch $2bn share buyback after profit boost from interest rates

Receive free HSBC Holdings PLC updates

We’ll send you a myFT Daily Digest email rounding up the latest HSBC Holdings PLC news every morning.

HSBC unveiled its second $2bn share buyback of the year after rising interest rates helped it post bumper quarterly profits of $8.8bn, strengthening executives’ hands against an activist campaign led by its largest shareholder, Ping An, to break up the lender.

The UK-based bank on Tuesday said second-quarter pre-tax profits surged 89 per cent from the same period last year, beating analyst estimates of $8bn. Revenue increased 38 per cent to $16.7bn, exceeding expectations for about $16bn.

The performance was largely driven by rising interest rates in the UK and US, which helped boost earnings even as growth faltered in its largest markets, Hong Kong and mainland China. The bank boosted its profitability and revenue targets for this year.

Chief executive Noel Quinn said HSBC had “good broad-based profit generation around the world . . . [which] shows tangible evidence the strategy is working”.

HSBC has boosted payouts to investors and closed underperforming businesses in several countries after coming under pressure from Chinese insurer Ping An last year to break up. The buyback announced on Tuesday adds to the $2bn unveiled in the first quarter. The bank also announced a dividend of 10 cents a share.

In May, about 80 per cent of shareholders voted to reject Ping An’s proposed split of its global operations into eastern and western units, a move the Chinese insurer argued would improve returns and help HSBC navigate China-US trade tensions.

Quinn said he had spoken to Ping An since the annual meeting but had “moved on” and was now focused on execution after “a very conclusive and decisive outcome” in the vote.

The figures are the latest sign of how central banks’ swift interest rate rises are boosting lenders’ performance, with banks generating profits from the difference between the interest they receive from making loans and the rate they pay out to depositors.

Rival Standard Chartered last week reported better than expected results. HSBC is particularly sensitive to interest rates as one of the world’s largest deposit-taking institutions, with total assets of $3tn.

HSBC said it expected $900mn in credit losses, including charges related to commercial real estate in China, to which it has $14.3bn of exposure. Chinese commercial property “is still going through some challenging times”, Quinn said. “It will really hinge on customer demand coming back into that sector.”

The chief executive added that China’s economic growth had undershot his expectations, describing it as “patchy” and forecasting that getting back to sustained growth would take “longer than we all expected”.

In the UK, HSBC and other lenders are under pressure from the Bank of England to pass on higher interest rates to savers and help customers struggling with escalating mortgage payments, which could reduce banks’ net interest margin.

HSBC shares rose 2.8 per cent in London, extending their gain so far this year to 25 per cent. “Overall good results, encouraging buyback update, and positive outlook. This should be taken well,” said Citigroup analyst Andrew Coombs.

Net interest margin — a crucial measure of lending profitability — rose to 1.72 per cent in the second quarter, up from 1.69 per cent in the first three months of the year and beating expectations of 1.66 per cent. The net interest margin of HSBC’s UK ringfenced bank was 2.49 per cent, far higher than the 1.83 per cent of its Hong Kong entity.

In June, HSBC agreed new terms for the long-delayed sale of its French retail banking network to a company owned by the US private equity group Cerberus.

The sale — part of HSBC’s strategy to focus on its profitable Asian operations while cutting costs and selling off operations in Europe and North America — had to be renegotiated after rising rates increased the amount that its US private equity buyer would have to inject.

HSBC is also exiting many of its operations in Oman, Greece and New Zealand and said the $10bn sale of its Canadian business was still on track to close early next year, after which it intends to pay a special dividend.

The results came a week after NatWest chief executive Alison Rose quit following her admission that she had misled a journalist about why Coutts, its private banking arm, had closed Nigel Farage’s bank account.

Asked about her departure, Quinn said Rose had “contributed very strongly” to industry-wide conversations and the Farage fiasco had been a “very challenging time for her personally”.