HSBC shares rise 3% after profit beat, $3 billion buyback announcement

LONDON — Europe’s largest lender HSBC on Wednesday declared a share buyback program of up to $3 billion, as pretax profit for the first half of the year beat expectations on the back of a high-interest rate environment.

The bank posted pretax profit in the six months to June of $21.56 billion, down from $21.66 billion in the same period of last year. The first-half figure nevertheless came in well above the $20.5 billion average of broker estimates compiled by HSBC, according to Reuters.

London-listed shares of HSBC picked up 3.12% at 08:42 a.m. London time, just after local markets opened, while Hong Kong-listed shares were up roughly 4.4%.

“We are growing and investing in our international retail and wealth business to sit alongside this, which is helping to diversify revenue,” HSBC’s outgoing CEO Noel Quinn said Wednesday.

“Each of these strengths contributed to a good revenue performance in the first half of 2024, supported by higher interest rates.”

The bank’s revenue was up 1.1% year-on-year to $37.3 billion, in a performance HSBC attributed to the “impact of higher consumer activity in our Wealth products in Wealth and Personal Banking (‘WPB’), and in Equities and Securities Financing in Global Banking and Markets (‘GBM’).”

The lender’s wealth revenue picked up by 12% to $4.3 billion in the first six months to June, with noted growth in investment distribution, asset management and life insurance.

The bank outlined its priorities of diversifying its revenues and maintaining a firm foothold in what it described as its “critical” home markets of Hong Kong and the U.K. — it noted 345,000 new-to-bank customers opening accounts in the former region in the first half of the year, with international customers up 8% to 2.7 million in Britain over the same period.

The bank also approved a second interim dividend of $0.10 per share and announced a share buyback of up to $3 billion, which it said it expects to complete within three months.

“That takes our total distribution to shareholders in 18 months to over $34 billion,” HSBC’s Quinn told CNBC Wednesday. “And I think the standout performance is, I think, our ability to continue to grow revenue from alternative sources other than interest income.”

HSBC’s CET1 capital ratio — a measure of bank solvency — picked up to 15.0%, up by 0.2 percentage points compared with the fourth quarter of last year and above the lender’s guidance of its medium-term target range of 14% to 14.5% for the metric.

The bank also declared a return on average tangible equity — a measure of profit efficiency — excluding notable items of 17.0% over January-June, down from 18.5% in the same period of last year. HSBC provided new guidance of “mid-teens return on average tangible equity in 2025,” in line with its 2024 outlook.

“The strong performance of the business gives us the confidence to say that we’ll be mid-teens return in 2025 as well,” Quinn told CNBC. Addressing the broader outlook, he touched on the bank’s performance in the U.K., saying, “I think there are some encouraging signs in there for future economic growth, and there’s certainly a strong resilient economy at the moment.”

In a note, Jefferies analysts characterized the new ROTE outlook as “welcome,” adding it “looks comfortably ahead of consensus around 12%.”

“Following strong performance in 2023, we think the bank’s earnings momentum has come to an end,” said RBC Capital Markets analyst Benjamin Toms in a Wednesday note, flagging expectations of falling rates across HSBC’s core geographies over this and next year.

“This headwind will be partially offset by hedging and balance sheet growth, but this growth is unlikely to be remarkable. HSBC has exhibited decent cost control since 2020, although disclosure makes it difficult to track,” Toms added.

— CNBC’s Ganesh Rao contributed to this report.