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HSBC announces $2bn share buyback as profit surges 74%

HSBC announces $2bn share buyback as profit surges 74%
HSBC said it was confident going into the fourth quarter. Photo: Peter Nicholls/Reuters (Peter Nicholls / Reuters)

HSBC (HSBA.L) said its profit had jumped by 76% and that it would be starting a $2bn (£1.4bn) share buyback as it reported third quarter results on Monday morning in London.

CEO Noel Quinn said: "While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us.

"This confidence, together with our strong capital position, enables us to announce a share buyback of up to $2bn, which we expect to commence shortly."

The bank's profit after tax was up $2.2bn to $4.2bn and reported profit before tax was up $2.3bn to $5.4bn for Q3.

The increase was driven by a release of expected credit losses and other credit impairment charges (ECL) and a higher share of profit from its associates.

The bank said that all regions were profitable in the third quarter. Asia contributed $3.3bn to group reported profit before tax, while HSBC UK reported profit before tax increased by $1bn to $1.5bn.

Read more: What are share repurchases?

Some $700m in cash was also released, having been previously put aside in case bad loans spiked during COVID-19.

While the bank was confident going into is fourth quarter, cost projections for 2022 were hiked from $31bn to $32bn due to inflationary pressures.

"With an improved revenue outlook and the prospect of rising policy rates, we remain committed to achieving a RoTE of greater than or equal to 10% over the medium term," it said in a statement.

HSBC's results follow a strong report from Barclays (BARC.L) last week, which doubled its profits off the back of a boom in investment banking fees and mergers and acquisitions (M&A). Barclays said it is "well positioned for a rising rate environment."

In comparison, HSBC's investment banking profits fell compared to the same time a year ago.

HSBC executives said on a call with media following the results that the bank isn't worried about the investment banking business potentially lagging peers because of the structure of the bank and the current "repositioning" of the business.

Quinn said that he expects HSBC's head offices will be working on a more hybrid basis and that the bank hadn't changed its plans regarding the economic outlook or its operational plans in the face of rising COVID cases in the UK.

Read more: Bank of England chief economist keeps November interest rate hike possibility 'live'

"All in, the picture is looking healthier for HSBC, but while interest rates remain on the floor, the group will continue to be held back," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

"One thing the group has in its favour is a highly diversified business model, which means when one area struggles, another can pick up the slack. Both its sprawling geographical footprint, plus alternative banking activities, like consulting and trading businesses, means HSBC is in a more enviable position than others.”

As of Friday, HSBC’s shares were up 15% year-to-date, sitting 6% below their 12-month high. They fell slightly following the report.

Watch: Will interest rates stay low forever?