HSBC says it will buy back $ 2 billion in shares if profits rise

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WSJ.com: Markets

HSBC HSBC 1.60%

Holdings PLC announced a $ 2 billion share buyback and net income spike in the third quarter as the lender tackled rising geopolitical risks and real estate market risks in China.

The London-based bank earned $ 3.54 billion in the three months ended September, up from $ 1.36 billion in the same period last year. Its profits were boosted by releasing funds it had set aside a year ago as banks prepared their loan books for widespread pandemic-induced defaults.

Most of the time, these losses did not occur. As the global economy recovers, banks have reversed previous provisions while reserving less for current loans to grow their profits.

Analysts had expected that HSBC will post a profit of 2.22 billion US dollars. Revenue was roughly unchanged at $ 12 billion.

HSBC’s shares rose nearly 2% on unexpected good earnings and the announcement of the buyback. CFO Ewen Stevenson said in an interview that the bank could announce more buybacks next year.

“Although we maintain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us,” said HSBC boss Noel Quinn in a statement. This, along with the group’s “strong capital position”, enabled HSBC to announce a share buyback of up to $ 2 billion, which will begin shortly, he added.

HSBC is increasing its focus on lucrative Asian markets and agreed to sell its French and US retail businesses earlier this year. It generated $ 1.77 billion in pre-tax income in Hong Kong, down 6.5% from Q3 2020, largely due to lower net interest income recently.

Mainland China’s pre-tax profit rose 45% quarter-on-quarter to $ 749 million, while HSBC’s UK bank profit more than doubled to $ 1.49 billion.

HSBC said it is closely monitoring China’s real estate market, where some developers, including real estate giant China Evergrande Group, are struggling to keep up with debt payments. HSBC said it had no direct credit exposure to real estate companies as of Sept. 30, which were considered the riskiest by the Chinese government.

“We’re not complacent, but we’re not overly concerned either,” said Stevenson. He said the Hong Kong real estate market, where HSBC is a major lender, appears to have been isolated from the mainland stress so far.

HSBC’s focus on Asia has been hampered by geopolitical tensions between China and Western nations. Some US and British politicians blamed the bank for not publicly criticizing China’s introduction of a new national security law in Hong Kong. Mr Quinn told British politicians in January that it was not his job as a banker to oppose Chinese policies. On Monday, the bank warned that diplomatic tensions between China and the West could create “regulatory, reputational and market risks”.

The bank is considering three or four acquisitions to expand its wealth management and insurance activities in Asia, which could total about $ 2 billion if deals are closed in the next year, Quinn told journalists. In August, HSBC agreed to pay $ 575 million for a Singapore-based life insurance unit of France’s AXA SA.

The bank paid an interim dividend of $ 0.07 per share last month for the first half of 2021. HSBC said Monday it won’t be paying quarterly dividends this year, but will look into seeing if it should do so by reporting full-year earnings in February 2022.

Write to Simon Clark at simon.clark@wsj.com and Elaine Yu at elaine.yu@wsj.com

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Appeared in the print edition of October 26, 2021 as ‘HSBC Sets Buyback as Profit Rises’.

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