HSBC revenue growth beats expectationsHeat Profit
HSBC has produced its third consecutive quarter of higher revenues thanks to loan growth in its core Asian and UK Markets and a resilient performance by its Investment bank that outperformed rivals in fixed income trading.
Stuart Gulliver, who is due to step down as chief executive in February having run the bank for seven years, said HSBC “maintained good momentum…with higher revenue in our three main global businesses.”
The stronger-than-expected top line growth helped the bank beat analysts’ consensus forecasts with a more than five-fold increase in pre-tax profits to $4.6bn from a year ago, when it took a big loss on selling its Brazilian operations.
The results come shortly after HSBC announced plans to promote John Flint, its head of retail banking and wealth management, to take over from Mr Gulliver in February.
Mr Flint is an HSBC lifer with almost three decades at the bank and is viewed by analysts as a safe pair of hands. He is expected to exert a moderating influence on new chairman Mark Tucker, formerly the chief executive of Asia-focused insurer AIA, who became the first outsider to chair HSBC since the bank was founded 152 years ago. His leadership at AIA spurred a 50 per cent jump in revenues and profits.
Mr Gulliver said on Monday that the “pivot to Asia” strategy he launched two years ago to shift hundreds of billions of dollars from under-performing assets to more profitable areas was paying off, “driving higher returns and lending growth, particularly in Hong Kong”. HSBC had previously been struggling to generate revenue growth.
However, analysts said the bank’s adjusted quarterly operating costs of $7.8bn for the third quarter were higher than expected, which the bank blamed on increased Investment and accrued bonuses. Joseph Dickerson, analyst at Jefferies, said: “We were disappointed there was no operating leverage as costs rose 7 per cent on increased discretionary spend.
The bank’s return on equity in the quarter was 7.1 per cent, below its target to earn more than its 10 per cent cost of capital in “the medium term”.
Iain Mackay, HSBC finance director, said the bank’s returns were held back by its $10bn of excess capital. “Until you redeploy that either in profitable assets or frankly take it out and return it to your shareholders it will be difficult to achieve the return on equity target,” he said.
The bank’s common equity tier one ratio fell slightly to 14.6 per cent in the quarter. It said new IFRS 9 accounting rules would add $2bn of loan losses and knock about 0.15 percentage points off its capital ratio from the start of next year.
HSBC, Europe’s biggest bank by assets, said adjusted third quarter revenue rose 2 per cent to $13bn, beating an average broker estimate of $12.7bn compiled by HSBC.
Revenues grew 6 per cent at its retail banking and wealth management division and 5 per cent at its commercial banking business while falling slightly in its private banking unit.
The global banking and Markets division increased revenues by 2 per cent, boosted by strong growth in equities trading and liquidity and cash management. Its fixed income, currency and commodity trading revenues fell 5 per cent – outperforming most major rival Investment banks.
After weathering a number of crises during their tenure, including an embarrassing private banking scandal, Mr Gulliver and former chairman Douglas Flint steered the bank through a number of sweeping reforms focused on its Investment banking division.
Many analysts say those efforts are beginning to pay off.
HSBC said that as of October 26 it had completed 71 per cent of the $2bn share buyback announced in July.
The bank’s shares have rallied strongly over the past six months, but on Monday morning were trading down 1 per cent in London at 741p pence.