HSBC's US$2b buyback fails to cheer investors as spending surges

Marcus Newton
May 5, 2018

"We are investing to grow revenue further".

The bank's shares fell 2.5 percent in London by 0750 GMT, in a sign of immediate investor scepticism that the bank's new investments will pay off after years spent focusing on cutting unprofitable parts of the business.

HSBC said it's in "active discussions" with the US Department of Justice about solving civil claims based on the department's investigation of HSBC's legacy RMBS securitisation activities.

The bank made over 75 percent of its profits in Asia in 2017.

But despite this investment, Europe's biggest bank by assets said it intends to initiate a share buy-back of up to US$2bn, which it expects to commence shortly. Mr Flint said the 8 per cent rise in underlying quarterly costs reflected investments in its Chinese and United Kingdom retail banking operations, its Chinese securities joint venture and digital improvements across the group.

In 2017, HSBC returned a total of $3 billion to shareholders through share buybacks and paid more in dividends than any other major European or American bank, while maintaining its capital buffers as revenue grew.

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One of Flint's main concerns will be improving HSBC's return on equity, which came in at 7.5% in the quarter, lower than its target of 10% and below the last-reported levels at its closest western rivals in size, JPMorgan Chase & Co. and BNP Paribas SA. Revenues rose 6% year-on-year to $13.7bn but a 13% increase in reported operating expenses to $9.4bn dragged profits down. However, achieving a 10% return for 2018 "looks hard", Finance Director Iain Mackay said on a call with reporters.

HSBC's revenue rose, however, to USD13.71 billion from USD12.99 billion the prior year and from USD12.30 billion in the last quarter of 2017. The profit in the latest quarter was below the $5.76 billion average of analysts' estimates compiled by the bank.

Profit was higher in all divisions except global banking and markets, which Mr Flint said was hit by "weakness in rates and credit" - adding that he was "not concerned about it".

Rising interest rates helped the bank generate more profit from a large base of deposits after years of low rates in the USA pushed down margins.

"The reality is Asia is where the economic growth is: rates, demographic, GDP", Flint said in an interview, when asked about HSBC's increasing reliance on the region.

HSBC's best regional performance came once again came from Asia, and Hong Kong in particular, where it's redeploying as much as $100 billion of capital.

Other reports by MaliBehiribAe

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