London: HSBC Holdings reported third-quarter profit that beat analysts’ estimates as Chief Executive Officer Stuart Gulliver pared costs and bolstered the lender’s capital cushion. The shares jumped by the most in two months in Hong Kong.
Adjusted pretax profit, which excludes one-time items, rose 7 per cent from a year earlier to $5.59 billion, Europe’s largest bank said in a statement on Monday. That compared with the $5.29 billion average estimate of five analysts compiled by Bloomberg News.
A UK regulator’s altered treatment of HSBC’s stake in China’s Bank of Communications Co. cut the British bank’s risk-weighted assets by $120.9 billion. That freed up $5.6 billion, which increased the lender’s capital ratio and will help to support its dividend and any future share buybacks, as well as providing a buffer for "the continuing uncertain regulatory environment," Gulliver said.
This should be enough to "allow the bank to maintain the dividend next year,” Sanford C. Bernstein & Co. analysts led by Chirantan Barua said in a note. "For yield investors who have been the source of support for valuation of this stock, this keeps the stock in the safety zone into the next six to nine months.”
The company’s shares rose 2.3 per cent in Hong Kong as of 1:28pm after earlier gaining as much as 3 per cent.
The bank’s common equity Tier 1 ratio rose to 13.9 per cent from 12.1 per cent three months earlier. That beat estimates of Morgan Stanley analysts, who expected an improvement to 12.9 per cent.
Almost six years into his tenure, Gulliver is striving to maintain revenue while paring global operations to trim $5 billion of annual expenses. His efforts to redeploy more assets into Asia have been complicated by China’s slowing economy, while the bank is also navigating tougher capital rules, low interest rates and misconduct scandals.
The stock had climbed 11 per cent in London this year, the second-most among major European lenders behind Standard Chartered at Friday’s close. Both get the vast majority of their profit in Asia and report in dollars, limiting the impact of Britain’s vote to leave the European Union. Even so, HSBC still trades below its book value.
Adjusted revenue gained 2.4 per cent to $12.8 billion. Adjusted operating costs fell 3.5 per cent to $7.25 billion, compared with the $7.33 billion average estimate of the five analysts surveyed.
Since Gulliver started restructuring the bank in 2011, he’s slashed headcount by about 44,000 and pledged 25,000 cuts last year, exiting at least 80 businesses. Globally, it’s retreated to 71 countries and territories from 88. Nevertheless, as with most European lenders, HSBC has been struggling to boost profitability. In August, management removed a target to surpass a 10 per cent return on equity by the end of 2017, citing economic and political uncertainties, and stepped back from its "progressive” dividend policy.
Adjusted pretax profit in Asia climbed 10 per cent to $3.8 billion in the quarter from a year earlier, while Europe reported a 5.4 per cent gain to $863 million.
At the retail banking and wealth management division, adjusted profit rose to $1.8 billion from $1.5 billion a year earlier. In global banking and markets, which houses the investment bank, adjusted profit jumped to $2.5 billion from $1.93 billion in the period. The gain was primarily driven by the bank’s fixed-income businesses, which gained market share in Europe, HSBC said.
Finance Director Iain Mackay has said revenue is suffering because of record-low interest rates around the world, a particular problem for HSBC because it houses more than $400 billion of surplus deposits. Mackay said in August the lender would lose about $100 million of net interest income a year as a result of the Bank of England cutting its main interest rate by 25 basis points after Brexit.
Adjusted loan impairment charges increased to $566 million in the third quarter from $434 million a year earlier.