HSBC Swings to Profit as Pivot to Asia Pays Off -- 2nd Update
HSBC Holdings PLC swung to a third-quarter net profit and said increased investment in its Asia business was paying off, with revenue there rising.
The U.K. banking giant on Monday posted a $3.24 billion net profit for the period versus a net loss of $204 million in the comparable quarter of 2016, on revenue up 36% to $12.98 billion. On a pretax basis, the bank's profit surged to $4.62 billion from $843 million a year ago.
Executives said there was strong growth in lending in Hong Kong and mainland China, including in the Pearl River Delta area where the bank has been staking out turf. Finance head, Iain Mackay, said balances there had grown to over $1 billion from "a very small base."
He said HSBC's new securities venture in China, underwriting stocks and bonds and advising on mergers, would contribute to its growing mainland business, albeit slowly and over time. The securities venture, which is the first majority-owned by a foreign bank, got the go-ahead from authorities in June.
HSBC Chief Executive Stuart Gulliver said the bank's international network continued to deliver strong growth in the third quarter, and its pivot to Asia was driving higher returns and lending growth, particularly in Hong Kong.
Asia loans and advances grew 17% in the three months to Sept. 30, compared with the third quarter of 2016. Asia customer deposits were $10.1 billion higher than at June 30. Across the bank, revenue on retail deposits rose to $1.61 billion from $1.3 billion in the third quarter of 2016.
The third-quarter results come after HSBC in late July reported a 57% rise in net profit of $3.87 billion for the second quarter amid improving loan growth and rising contribution from its other businesses. The profit growth has helped the bank accrue surplus capital and it has been returning some of it to shareholders by buying back shares.
In an interview, Mr. Mackay said the bank still had around $10 billion of extra capital tied up in its subsidiaries, including around $6 billion in the U.S. He said further buybacks would be considered, "when the time is appropriate." Local regulators must approve capital moving up to the group level.
HSBC was founded in Hong Kong in 1865 and is headquartered in London. It considers Hong Kong and the U.K. to be its two home markets.
Mr. Gulliver heralded a "pivot to Asia" in June 2015 as one of the finishing touches to the bank's overhaul after the financial crisis. During his time as CEO, starting in 2011, HSBC exited dozens of businesses and withdrew from parts of the globe. Mr. Gulliver said at the time that HSBC would aim to repeat its historic growth in Hong Kong in China's emerging urban centers.
On Monday, Mr. Gulliver said HSBC had hit most of the targets he set out in 2015 and that he aimed to have them all done when he retires from the bank on Feb. 20, 2018.
Mr. Gulliver announced his resignation this year. A new chairman, Mark Tucker, started in October and named retail head John Flint as Mr. Gulliver's replacement.
One of the tasks set by Mr. Gulliver was to significantly improve HSBC's processes and controls around preventing financial crime. Raising its standards is a key condition of a five-year deferred prosecution agreement the bank entered in 2012 with the U.S. Department of Justice, while paying $1.9 billion in a settlement over money-laundering allegations.
HSBC is awaiting news from the Justice Department on whether the deferred prosecution agreement will expire or be extended.
Write to Margot Patrick at margot.patrick@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
October 30, 2017 07:13 ET (11:13 GMT)