HSBC Holdings Plc outlined a bullish outlook for the months ahead fueled by likely increases in interest rates and said it would soon kick off a higher-than-expected share buyback. 

Adjusted pretax profit rose to about US$6 billion in the third quarter, beating estimates, the London-based lender said on Monday. Revenue climbed slightly in the third quarter for the first time in almost two years and the possibility of earlier-than-expected rate rises may drive further increases going forward.   

“We do think that we are close to an inflection point now in revenues,” Chief Financial Officer Ewen Stevenson said in a phone interview Monday. “If we do get rate rises it will be a very material kicker to our performance.”

HSBC also reversed US$659 million in expected credit losses, largely at its U.K. ringfenced bank. That’s the largest release since the pandemic began and more than analysts expected. The bank said in a statement that “a further small net release” could happen in the fourth quarter. 

Banks have been benefiting from an economic recovery as pandemic restrictions have eased and regulators lift limitations on shareholder returns. Rising expectations that central banks will raise rates to fight rising prices is also boosting sentiment.

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In an interview with Bloomberg Television, Stevenson said the bank is expecting two to three hikes in U.K. interest rates from their historic lows by the end of next year.

The US$2 billion buyback was ahead of market expectations, analysts at Jefferies said in a note. The bank’s shares rose 1 per cent at 12:05 p.m. in London and are up 16 per cent so far this year.

“We are likely to see further buybacks,” Stevenson said in the phone interview.

What Bloomberg Intelligence Says

HSBC’s upbeat outlook and US$2 billion buyback announced at 3Q are positive signs from a management that is notoriously conservative. 

-- Jonathan Tyce, BI banking analyst

HSBC is in the midst of a big shakeup to expand in Asia and is targeting wealth management as a key profit driver. The lender is exiting businesses in the U.S. and Europe, pouring billions of dollars in fresh investments into Asia, where the bank already makes most of its money. Adjusted profit in Asia accounted for more than half of the total in the third quarter.  

The lender downplayed risks spreading in China’s real estate sector as turmoil swirls around China Evergrande Group. It had US$19.6 billion exposure in China’s real estate sector, including Hong Kong incorporated property firms, at the end of June, the lender said. As of the end of September, HSBC has no direct credit exposure to developers in the “red” category under China’s three red lines.

Stevenson said on Bloomberg Television that the bank expects no material fallout from Evergrande.
 

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HSBC saw lower revenue in wealth and personal banking, while commercial banking income gained. Revenue at its investment bank was down 3 per cent, including a 46 per cent fall at global debt markets -- a drop the bank said was due to last year’s strong result, as well as its decision to deploy less capital within the unit. Stevenson said by phone that HSBC was “pleased not to be exposed” to the boom in blank-check firms that fueled stronger earnings at rival investment banks. 

Still, like other major banks, HSBC is facing cost pressures amid a worldwide war for talent for financiers. Chief Executive Officer Noel Quinn said in a call with analysts that staff bonuses would be paid at an “appropriate level” while Stevenson added that the company was seeing “sustained wage pressure globally at the moment.”

Other key figures from HSBC’s third-quarter earnings include:

  • Adjusted profit-before-tax was up 36 per cent, thanks largely to the credit writeback
  • Net interest income of US$6.6 billion, down 1 per cent compared to last year
  • CET1 ratio, a key measure of financial strength, was 15.9 per cent