- First-half revenue flat
- Profit 16% above forecasts
- 2025 return target raised
Global banking giant HSBC (HSBA) pleased investors with its first-half trading update and another bumper buyback as it said goodbye to chief executive Noel Quinn who is passing the baton on to Georges Elhedery.
HSBC shares were marked up 24p of 3.5% to 701p making them the biggest gainer in the FTSE 100.
PROFIT BEAT AND GUIDANCE RAISED
For the six months to the end of June, revenue inched up $0.4 billion or 1% to $37.3 billion as gains on the sale of its Canadian business offset a $1.4 billion drop in net interest income due to ‘deposit migration’ and other effects.
The net interest margin – being the difference between the interest rate HSBC charges on loans and the rate it pays on deposits – dropped from 1.7% to 1.62% as more savers sought out higher-interest accounts.
There was a positive contribution from the personal wealth business and from the investment banking business, but like its peers HSBC saw virtually no growth in its core lending which was flat at $938 billion.
Also like its peers, the bank faced rising operating costs due to spending on technology and ‘inflationary pressures’ along with higher performance-related pay deals.
However, pre-tax profit of $9.1 billion beat estimates by 16% due to lower provisions for bad loans, in particular relating to the commercial property sector in China, as well as reduction in charges for UK credit losses and the release of macro provisions.
As a result, return on tangible equity rose to 16.3% which was 1.4% above market expectations, and the bank raised it 2024 guide ‘mid-teens’ ROTE compared with the consensus forecast of around 12%.
The bank also announced a new $3 billion share buyback, which it expects to complete within three months, on top of the ordinary second interim $0.10 per share dividend.
WHAT DID THE CEO SAY?
‘After delivering record profits in 2023, we had another strong performance in the first half of 2024 which is further evidence that our strategy is working,’ commented Quinn.
‘Our investment in wealth is delivering higher, more diversified revenue and we continue to grow our core international and scale businesses, all of which helped us to provide $13.7bn of distributions in respect of the first half.
‘We are confident that we have the right strategy and model to grow revenue, even in a lower interest rate environment, and are therefore providing new guidance of a mid-teens return on average tangible equity in 2025.’
