HSBC Announces Fresh Buyback as Higher Rates Propel Profits

HSBC Holdings Plc announced a new buyback program and painted a bullish outlook for its 2023 earnings, joining peers in benefiting from global rate rises that have been boosting income.

(Bloomberg) — HSBC Holdings Plc announced a new buyback program and painted a bullish outlook for its 2023 earnings, joining peers in benefiting from global rate rises that have been boosting income.

The London-based lender, which generates most of its income in Asia, will repurchase an additional $2 billion on top of a previous program announced just three months ago, according to a second-quarter earnings statement on Tuesday. HSBC also said it is now expecting net interest income for 2023 to be above $35 billion, up from more than $34 billion.

Net interest margin rose to 1.72% pushing pretax profits to $8.8 billion in the three months through June, beating a company-compiled analyst estimate of $7.96 billion.

“If you take one thing from today’s results, it’s our strategy is working,” Chief Executive Officer Noel Quinn said in a media call, later stressing to analysts that the bank’s wealth business continues to gather momentum, particularly in Asia.

HSBC shares in London rose 2.46% as of 8:23 a.m. in London.

HSBC is in the midst of a strategic repositioning of its business in a pivot toward Asia with more of the group’s resources focused on capturing growth in faster-growing markets. The lender has been under pressure from top shareholder Ping An Insurance Group Co. to improve returns even as the insurer failed to gain the backing of other investors to compel HSBC to report regularly on a possible carve-out of the Asian unit.

“That matter is now closed from the point of view of HSBC,” Quinn said on a Bloomberg Television interview.

Read More: HSBC CEO Says Lender Has Moved On From Ping An Breakup Campaign

The results make HSBC the latest lender to see profitability surge on higher lending income. Smaller rival Standard Chartered Plc also raised its forecasts last week after strong second-quarter earnings.

Still, banks are coming under pressure to pass on more of the rate rises to savers. They have only passed through about a quarter of interest rate rises to consumers, the UK’s Financial Conduct Authority has said as it warned of “robust action” for firms that don’t transfer benefits to consumers.

Wealth, Markets

Wealth revenue rose 19% compared to the same period last year due to growth across all products, particularly in life insurance. At HSBC’s global banking and markets arm, debt capital markets revenues offset falls in its global foreign exchange and equities business. Banking revenue rose with capital markets and advisory up due to higher debt capital markets volume.

The lender booked $913 million of charges for expected credit losses, including about $300 million linked to commercial real estate in mainland China. The UK ring-fenced bank took a $300 million ECL charge relating to commercial banking.

What Bloomberg Intelligence Says

HSBC’s upbeat 2023 outlook (mid-teens return on tangible equity vs. above 12% earlier) and another $2 billion buyback announced at 2Q confirm its strong outlook. A 10% consensus pretax beat was driven by robust revenue and tight costs, with updated net interest-income guidance of more than $35 billion (vs. above $34 billion) for 2023 more in line with consensus expectations. Nearly a third of 2Q’s expected credit losses were for Chinese commercial real estate, which remains a key source of risk.

Tomasz Noetzel, BI analyst

While Quinn emphasized there was a focus on boosting operational performance, he said on the call with journalists that “we’re open minded to doing further bolt-on acquisitions” if it bolsters strategic ambitions.

HSBC has earmarked countries such as India for expansion. The firm saw invested assets in India more than triple in 2022 from a year ago and expects this to continue growing at a fast pace, according to comments made by HSBC executive Nuno Matos last month.