- Earnings beat despite sluggish revenues
- Wealth and investment bank deliver
- New buyback and restructuring in focus
Rounding out the results of the Big Four UK banks, HSBC (HSBA) delivered third-quarter earnings which beat market forecasts and announced it would launch a fresh $3 billion share buyback.
After rallying 4% in Hong Kong earlier in the day, the shares had popped 28p or 4% to 720p by mid-morning taking them to a new 12-month high and the top of the FTSE 100 leader board.
BOTTOM LINE BEATS
Total revenue increased 5% from a year earlier to $17 billion driven by higher income from the Wealth division and the investment bank, while net interest income fell by 17% or $1.6 billion to $7.6 billion due to higher interest costs, a loss on the early redemption of certain securities and business disposals.
The net interest margin shrank by 24 basis points or 0.24% compared with a year ago and by 16 basis points or 0.16% from the second quarter to just 1.46%, mainly as a result of higher interest costs on deposits, although the bank kept its net interest income guidance for the full year.
Operating costs of $8.1 billion were $200 million higher than last year due to spending on technology and the impact of inflation, while provisions for bad loans were $100 million lower at $1 billion reflecting fewer charges for Hong Kong and mainland Chinese commercial real estate.
That meant pre-tax profit rose $800 million to $8.5 billion, well ahead of the consensus forecast of $7.6 billion, and following the completion of its last $3 billion share buyback the bank announced it would start another round of $3 billion to be completed ahead of the full-year results in February.
Having already announced a reorganisation of the business into four separate lines, chief executive Georges Elhedery said he would share further updates on the bank’s strategic overhaul with the full-year results.
HSBC has been under pressure from one of its largest shareholders, Chinese insurer Ping An (2318:HKG), to spin off its Asian operations, so splitting its business along geographical lines may be seen in some quarters as a preliminary step towards breaking up the group.
EXPERT VIEWS
‘The big shake-up of HSBC looks to be taking place from a position of some strength based on the company’s latest quarterly numbers which came in notably better than anticipated’, commented AJ Bell head of financial analysis Danni Hewson.
‘Georges Elhedery has wasted absolutely no time since taking the top job in September, already announcing plans to split HSBC geographically into eastern- and western-facing businesses.
‘Elhedery has denied this will lead to a break-up of the business, and suggested it is about simplification rather than any response to the current geopolitics, but that will do little to dampen speculation.’
Michael Makdad, senior equity analyst at Morningstar, described the results as ‘solid, with no major surprises’, but agreed that rather than the numbers investors were likely to focus on the structural overhaul and details on cost cuts from the new chief executive and chief financial officer.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
