As the last of the ‘Big Four’ UK banks to report, HSBC’s (HSBA) third-quarter earnings update turned out to be something of a damp squib with earnings missing forecasts but the shares moving sideways rather than down on news of yet another buyback.

After initially dipping 5p then rallying 15p, by late morning the stock price was flat at 600p as interest waned.

WHAT DID THE BANK HAVE TO SAY?

Asia-focused HSBC, Europe's biggest bank by market cap, posted a 40% increase in revenue to $16.2 billion as higher interest rates translated into a stronger top line across its global businesses.

Net interest income jumped 15% from $8 billion to $9.25 billion as the group net interest margin widened from 1.51% to 1.7%, while non-interest income almost doubled to $6.9 billion due to the non-recurrence of last year’s $2.3 billion write-off for the sale of its French retail banking operations, although these assets are being reclassified as ‘held for sale’ so the bank will book a $2 billion-plus impairment in the fourth quarter.

The loan book shrank by $24 billion during the quarter due to lower commercial lending in Asia, although mortgage balances were higher across the group including the UK, while provisions for bad loans were $1.1 billion of which nearly half was for commercial property in China.

Pre-tax profit leapt by $4.5 billion to $7.7 billion due to the aforementioned non-recurrence of write-offs for the French business, but this missed market estimates of $8.1 billion and the news that costs would be higher than expected going forward also failed to impress.

However, investors were mollified by the promise of a further $3 billion share buyback which the bank said would begin ‘shortly’ and would be completed by the time of its full-year results next February.

WHAT DO THE EXPERTS THINK?

‘A larger than expected share buyback seems to be doing a lot of the heavy lifting for HSBC today, making up for some less than positive details in its third quarter results’, commented AJ Bell investment director Russ Mould.

‘What may sober up any investors drunk on a $3 billion handout is the higher-than-expected cost growth now expected for 2023. Management had made keeping a tight rein on any outgoings a key part of their strategy, so to fall down on this point does some damage to their credibility’, added Mould.

Jefferies analyst Joseph Dickerson said the results showed HSBC’s strong capital generation and the strength of its balance sheet with the buyback topping his forecast of $2 billion.

However, Dickerson described the higher cost guidance for this year as ‘unhelpful’ and suggested the larger question was what to expect for next year given the consensus has penciled in just a 1.3% increase in operating expenses.

LEARN MORE ABOUT HSBC

 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.

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