HSBC – Profits Soar, Quarterly Dividend Restored And A Fresh Buyback

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HSBC Holdings plc (LON:HSBA) saw first-quarter revenue rise 74%, ignoring the effect of exchange rates, to $20.2bn. Within that, $2.1bn reflected the reversal of a previous charge relating to the planned sale of the French retail banking operations. There was also a £1.5bn provisional gain relating to the acquisition of Silicon Valley Bank (SVB) UK.

In preparation for debt defaults, provisions of $400m were set aside, significantly lower than analysts expected, as HSBC reported an improved economic outlook.

All-in, these factors helped profit before tax, ignoring the effect of exchange rates, rise by $9.0bn to $12.9bn.

The board announced an interim dividend for 2023 of $0.1 per share, the first quarterly dividend since 2019. There are also plans for a $2bn buyback, expected to start shortly.

The shares rose in 4.1% trading.

HSBC’s Earnings

HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter.

Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe had been the lack of returns given the strong capital position.

There’s a fair amount to unpick in these results, with a few elements flattering performance figures. Higher rates in France mean the sale of HSBC’s French retail business is looking less likely, and impairment charges relating to the sale have been reversed for now. That provided a boost to profit, but this isn’t the best news in the long run.

Getting rid of underperforming businesses to increase focus on higher growth areas like Asia is key to the strategy. It’s positive to hear the Canadian sale is progressing, that’ll provide a capital boost to what’s already a strong balance sheet and should add further options to either expand in higher growth areas or appease investors with further distributions.

The acquisition of Silicon Valley Bank’s UK arm for £1 looks like a steal. It’s hard to knock a provisional gain of $1.5bn and increased exposure to the high-growth tech and life sciences sectors.

This was a strong quarter, even once you strip out the one-off gains mixed into reported numbers. The focus on cost control over 2022 and the potential for further benefits from a Chinese reopening makes the valuation attractive.

Article by Matt Britzman, equity analyst at Hargreaves Lansdown