HSBC Holdings plc (LON:HSBA)’s underlying revenue fell 1% to $12.2bn in the third quarter, reflecting negative market impacts in life insurance and lower trading revenues in debt markets following a particularly strong result last year. The global low interest-rate environment also continues to weigh.
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Provisions for bad loans swung from an $823m charge to $659m release, underpinning a 36% improvement in pre-tax profit of $1.6bn.
CEO Noel Quinn said “we believe that the lows of recent quarters are behind us”, and the group announced a new $2bn share buyback programme.
The shares were unmoved following the announcement.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:
“HSBC is a giant in its industry, and with signs of more positive economic conditions comes a brighter set of results. Pre-tax profits have been buoyed by a huge swing in expected credit losses – with a chunky charge this time last year, turning into a release that buffer this quarter. The group is so confident about the direction of travel, it’s announced a $2bn share buyback programme.
A CET1 ratio well above target risks looking like a waste of uninvested equity, and capital returns are one way to deal with that. However, a lack of available investment opportunities could be a potential concern for more growth minded investors.
HSBC is the latest bank to hint at an expected hike in interest rates. This helps elevate the mood because higher interest rates improve the profitability of loans. All in, the picture is looking healthier for HSBC, but while interest rates remain on the floor, the group will continue to be held back. One thing the group has in its favour is a highly diversified business model, which means when one area struggles, another can pick up the slack. Both its sprawling geographical footprint, plus alternative banking activities, like consulting and trading businesses, means HSBC is in a more enviable position than others.”
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