Yahoo Finance FTSE 100: HSBC profits jump by $1bn boosted by rising interest rates
HSBC (HSBA.L) has posted better-than-expected profits for the third quarter, with the lender reporting that adjusted pre-tax profit of $6.5bn (£5.75bn/€6.59bn), compared to $5.5bn a year earlier.
The $1bn increase was driven by a global rise in interest rates that helped spur higher returns.
Net interest income, which is the difference between what it charges for loans and pays in interest on deposits, hit $8.6bn, its best third quarter in more than eight years.
Noel Quinn, HSBC’s group chief executive, said: “We maintained our strong momentum in the third quarter and delivered a good set of results.
“Our strategy produced good organic growth in all three global businesses and net interest income increased on the back of rising interest rates.
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Asia accounted for more than 55% of HSBC’s $6.5bn in adjusted pre-tax profits in the third quarter.
However, in the three months to September 30, HSBC reported a non-adjusted pre-tax profit of $3.5bn, down 42% from $5.40bn a year before.
"There are therefore two ways to view the results. On the one hand, the provisions have meant that net profit has decreased by 46% to $1.91 billion (although ahead of the expected $1.15 billion), pre-tax profit has fallen by 42% and revenues by 3%. However, the adjusted numbers reveal a different picture, with adjusted pre-tax profit rising by 18% and revenues by 28%. This shows that the underlying business remains in rude health, with the bank taking an extremely conservative approach to the current outlook," Richard Hunter, head of markets at Interactive Investor, said.
"This may have some merit. The group is largely dependent on its Asian income, and the current parlous state of the commercial real estate sector in China is a clear concern. In addition, inflationary pressure has notably reduced real wages for customers, which in turn heightens the likelihood of loan defaults. At the same time, the group is not immune from the wider global pressures of volatility arising from the possibility of recession, rising interest rates and geopolitical conflict which is having a detrimental effect on sentiment and prospects," he added.
HSBC shares in London plummeted after the lender reported its third quarter results.
Net insurance premium income slipped to $2.66bn from $2.72bn and revenue decreased by 3.2% to $11.62bn from $12.01bn.
It has also set aside $1.1bn in expected credit losses in the latest quarter, a big jump from the $659m in charges last year.
“Rising interest rates may be good news for banks but it’s all the other stuff which is causing them headaches right now," AJ Bell financial analyst, Danni Hewson, said.
“Concern about the impact of a slowing economy on bad debts and growth in the loan book is being exacerbated at HSBC by the departure of well-respected finance director Ewen Stevenson and the deteriorating situation in China.
“This explains HSBC serving up a better-than-expected set of third quarter numbers only to have the market effectively tell it to get stuffed.
The bank said the charge reflects a deterioration in the economic outlook from greater uncertainty, inflation, and rising interest rates, which is expected to have an impact on people’s loans repayments in 2023.
“We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023.
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“We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders,” Quinn added.
HSBC announced that Georges Elhedery, co-head of global banking and markets, would replace Ewen Stevenson as chief financial officer, in a surprise move that leaves him in pole position to succeed Quinn.
The bank maintained its guidance for a dividend payout ratio of 50% in 2023 and 2024.
HSBC, which is fending off calls for a breakup from Chinese shareholder Ping An, is the first major UK bank to report figures.
Watch: HSBC rejects Ping An break-up call
