HSBC's Profit Skids 29% on Britain, Hong Kong Slowdown
HSBC said its first-half profit tumbled 29 percent, slammed by slowing growth in its home markets in Britain and Hong Kong, but Europe's biggest bank cheered investors by announcing plans to buy back up to $2.5 billion of its shares.
The lender's shares rose as much as 1.9 percent after the buy-back took the sting out of a drop it reported on Wednesday in January-June pretax profit to $9.7 billion, just below an average estimate of $10 billion compiled by Thomson Reuters.
Analysts joined investors in welcoming the buy-back, along with a commitment from the London- and Hong Kong-based bank to maintain current dividend levels for the foreseeable future, despite gloom in its key markets.
By 0653 GMT HSBC shares in Hong Kong were trading up 1.8 percent at HK$51.70, rebounding from a fall of 1.7 percent prior to the announcements.
But as Britain's vote to leave the European Union clouds economic prospects, and Hong Kong absorbs slower growth in China, HSBC warned it had decided to "remove a timetable" for reaching its targeted return on equity in excess of 10 percent by the end of next year. Return on equity at end-June was 7.4 percent.
HSBC also said it was committed to sustain annual ordinary dividend for the year at current levels for the foreseeable future. That commitment, along with the buy-back, was described by Bernstein analysts in a note as positive for the bank's shares in the short term.
Group Chief Executive Stuart Gulliver, however, said in a call with Reuters that the bank had removed the word "progressive" from its guidance on dividend payout plans, as a reflection of tougher market conditions.
"'Progressive' was interpreted by everyone as meaning it is going to go up every quarter notwithstanding what is happening in the world, so what we are saying is we are committed to sustain the dividend at the current level," Gulliver said.
Gulliver said in a statement the buy-back - following the disposal of HSBC's Brazil unit last month in a $5.2 billion deal - "demonstrated the strength and flexibility" of its balance sheet.
"The fall in profits is pretty much to be expected as indeed is lower guidance on ROE (return on equity) given nigh-on zero interest rates," said Hugh Young, head of equities at Aberdeen Asset Management, a top HSBC shareholder.
"The buy-back may be more of a token gesture, like the earlier marginal dividend increase," Young said, adding that he believed the management would continue to invest in its business plan as necessary.
The bank reported its earnings as clouds gather over Europe's banking sector, rattled by deteriorating profit and yields amid record low interest rates, as well as higher regulatory costs.
"Following the outcome of the (Brexit) referendum...there has been a period of volatility and uncertainty which is likely to continue for some time," Gulliver said in the statement.
"We are actively monitoring our portfolio to quickly identify any areas of stress, however it is still too early to tell which parts may be impacted and to what extent."
HSBC said its core capital ratio, critical to its ability to sustain dividend payouts, rose to 12.1 percent, up from 11.9 percent at the end of December. The sale of the Brazilian operations is expected to add a further 0.7 of a percentage point in the third quarter, it said.
(Reporting by Sumeet Chatterjee in HONG KONG and Lawrence White in LONDON; Additional reporting by Sinead Cruise in LONDON; Editing by Kenneth Maxwell)