HSBC launches $3 bln buyback, profit disappoints on rising costs

HONG KONG/LONDON: HSBC (HSBA.L) announced on Monday a fresh $3 billion share buyback, and a more than doubling of third-quarter profit that nonetheless disappointed as upward pressure on wages and technology spending pushed costs above forecasts.

The results from Europe's biggest bank showed the hurdles it faces in delivering the consistent returns its long-suffering investors expect, now that interest rates worldwide are rising, even as it showers them with cash from dividends and buybacks.

HSBC said costs will increase by up to 5% this year excluding the acquisition of Silicon Valley Bank's British unit, more than its previous goal of a 3% rise, as spending grows and it considers bigger bonuses for bankers in the fourth quarter.

The bank posted a pre-tax profit of $7.7 billion for the July to September quarter, versus $3.2 billion a year earlier, but the result trailed the $8.1 billion mean average estimate of brokers compiled by HSBC.

HSBC's profit was below expectations and "costs are likely to be the area of controversy", said London-based Jefferies analyst Joe Dickerson, though he added the share buyback was $1 billion larger than his forecast.

The London-headquartered bank with a market value of $118.6 billion said it aimed to complete the share buyback by next February, lifting the total buybacks announced this year to $7 billion.

It also set the third interim dividend this year of 10 cents per share, bringing the total annual payout so far to 30 cents per share.

HSBC shares in London rose 1% in early trading on Monday, in line with the benchmark FTSE 100 index (.FTSE). Its Hong Kong-listed shares were down 1.46%, underperforming the market's wider financial index, (.HSNF) which fell 1.03%.

CHINA COMMERCIAL REAL ESTATE

In the third-quarter results, the lender booked a $500 million impairment related to the commercial real estate sector in mainland China, but Chief Executive Noel Quinn said the worst was likely over for the troubled sector.

"I do think the major correction [of the property market] is over and it's now a case of a progressive work over an extended period of time," Quinn told an earnings conference call on Monday.

CFO Georges Elhedery said "a couple of quarters of difficulty as the sector adjusts" is still expected going forward.

Its Asia-focused competitor Standard Chartered (STAN.L) reported last week an unexpected one-third plunge in third-quarter profit due to a nearly $1 billion combined hit from its exposure to China's real estate and banking sectors.

HSBC's third-quarter revenues rose 2% in the Global Banking and Markets division that houses its investment bank, a more robust performance than rival Barclays' BARC.L 6% drop as HSBC's large payments business benefited from higher interest rates.

The bank's wealth business, which it is prioritising for growth, attracted $34 billion of net new invested assets in the quarter and revenues have grown 12% so far this year as rate hikes let it reap bigger margins on lending.

The lender's overall net interest margin of 1.70% was, however, squeezed by 2 basis points compared with the prior quarter as customers shifted their deposits to term products, particularly in Asia.

Foreign banks in China, including HSBC, are also invested in big local lenders that started to feel the pinch of the government-guided move to lower mortgage rates as Beijing seeks to boost borrowing.

China's Bank of Communications Co Ltd (BoCom) (601328.SS), of whose Hong Kong-listed shares HSBC held 40.3% according to stock exchange filings - reported a 2.98% drop in third-quarter net profit on Friday.