HSBC Announces $3 Billion Share Buyback Amid Profit Miss

HSBC Holdings Plc, Europe's largest bank by assets, has unveiled a new share buyback program, while hinting at more returns for investors, despite posting third-quarter profits that missed market expectations. The move comes as the bank grapples with global economic challenges, including the evolving landscape in China's real estate market.

HSBC's latest initiative will see them buying back an additional $3 billion of their shares, bringing the total stock repurchases for the year to $7 billion. CEO Noel Quinn, in a Bloomberg Television interview, hinted at the possibility of further returns to investors, citing strong capital generation and the desire to reward loyal shareholders.

However, the bank reported a pretax profit of $7.7 billion for the third quarter, falling short of the $8.1 billion estimated by analysts. A $600 million charge related to its hedging strategy contributed to the earnings miss. Despite this setback, Quinn noted that the charge would benefit the bank in subsequent quarters.

Operating expenses increased by 2% year-on-year, partly due to planned performance pay raises for some employees and higher technology spending. HSBC revised its 2023 cost growth target to about 4%, up from the previous goal of about 3%.

HSBC, which predominantly generates its income in Asia, reported positive performance in the region, particularly in Hong Kong, and announced its acquisition of Citigroup Inc's retail wealth management portfolio in mainland China, adding approximately $3.6 billion in assets and deposits.

The bank is not without its challenges, especially amid sputtering growth in China and a real estate market downturn. HSBC's loan loss provision for the quarter was $1.1 billion, with half linked to China's commercial real estate sector. Quinn believes the Chinese property market has experienced a "huge policy correction" but expects a gradual improvement in the sector over the next 12 months.

Despite the challenges, HSBC is keeping its target of mid-teens growth in its return on tangible equity and expects net interest income to exceed $35 billion this year. The bank's outlook for expected credit losses remains unchanged.

In the three months ending September, HSBC reported a profit after tax of $6.26 billion, a significant 235% increase compared to the same period last year. The profit before tax for the quarter also rose by $4.5 billion to $7.7 billion, primarily due to a higher interest rate environment.

However, these figures still missed expectations set by economists, who were forecasting a third-quarter profit after tax of $6.42 billion and a profit before tax of $8.1 billion. The bank attributed this discrepancy in part to a $2.3 billion impairment in the third quarter of 2022 related to the planned sale of its retail banking operations in France. Of this, $2.1 billion was reversed in the first quarter of 2023, as the transaction's completion became less certain.