HSBC has announced a $1billion share buyback scheme after first-half profits jumped by 23 per cent. London's largest listed company posted a pre-tax profit of $19.5billion for the first six months of the year, up from $15.8billion a year earlier.
The performance, which was ahead of analyst expectations, reflected a stronger performance in its wealth management and insurance business, including in its "second home market" of Hong Kong. But pre-tax profits were hit by impairment losses linked to the bank's stake in Chinese lender Bocom, as well as restructuring costs of $500million.
HSBC said it will resume its buyback scheme after pausing it late last year, following its acquisition of Hong Kong's Hang Seng Bank. It also approved a second interim dividend of ten cents per share.
Second-quarter results
In the three months to June 30, pre-tax profits jumped by 60 per cent to $10.1billion as revenue topped $19.1billion. Revenues from its wealth segment jumped 22 per cent in the second quarter from a year earlier to $2.8billion, while wholesale transaction banking revenues increased by 7 per cent at $3billion.
The lender's net interest margin, a key indicator of a bank's profitability from lending, was up four basis points to 1.61 per cent. Fee income, which is coveted by banks as a stable form of income due to its non-reliance on interest rates, rose nearly 10 per cent to $7.3billion.
Bonus pool and leadership
Chief executive Georges Elhedery said the bank would consider upping the bonus pool for bankers if the lender's strong performance increases. He told reporters: "Should we continue to see this momentum carry forward into the second half, then we would certainly consider to reward our colleagues for their increased performance by adjusting the variable pay pool upwards."
Since taking charge, Elhedery has overseen a split of the business into eastern and western markets, covering the Asia-Pacific and the Middle East and the Americas and Europe, respectively.
UK profits and windfall tax debate
In the UK, pre-tax profits jumped by 20 per cent to $3.9billion. It comes as campaigners call for a windfall tax on banks, as they see profits buoyed by higher interest rates and improved trading.
On the prospect of higher taxes, Elhedery said this is a matter for the government, but added that for growth to manifest, businesses need to be confident and invest, and that for businesses to invest they need access to financing. He said banks are the preferred financing mechanism for these businesses, so UK growth requires strong banks. His comments echoed those made by NatWest boss Paul Thwaite last week, who called for consistency of policies so businesses can plan.
Elhedery, who was born in Lebanon, described the UK economy as being outstandingly resilient, despite all the challenges seen lately, notably the Middle East conflict. He added that the UK remains a very attractive international investment hub and that the bank continues to see foreign direct investment in the UK creating jobs in all parts of the country.
Share price reaction
HSBC shares fell 0.65 per cent, or 10.40p, to 1,587.00p on Tuesday morning.
Richard Hunter, head of markets at Interactive Investor, said the share price has risen by 74 per cent over the last year, compared with a gain of 19 per cent for the wider FTSE 100, and by 151 per cent over the last two years. He said these gains have lifted HSBC to becoming the largest member of the FTSE 100, helped along by a general sector rerating.
Hunter said that given this stellar run and some slight disappointment on the buyback and provisions announcements, a marginal move in the price at the open was of little surprise. He added that while the group may not be at the top of the pack given the perception of more balanced growth elsewhere in the sector, the market consensus of the shares as a cautious buy nonetheless reflects the stability and major financial strength that investors especially appreciate in volatile trading times such as these.
