HSBC’s third-quarter profit beats expectations as Hong Kong and UK, its two biggest markets, face economic pressure
- Net profit fell to US$1.9 billion, compared with US$3.5 billion in last year’s third quarter; better than analysts’ expectations
- Ewen Stevenson to step down as chief financial officer at end of the year, leave HSBC in April
The bank, one of Europe’s largest by assets, also said Georges Elhedery, the investment banking co-head who recently returned from a six-month sabbatical, will become its new chief financial officer in January, setting him up as a potential successor to chief executive Noel Quinn, 61.
“We maintained our strong momentum in the third quarter and delivered a good set of results,” Quinn said in a statement. “Our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates.”
05:25
HSBC’s break-up dilemma: why bank’s largest shareholder is pushing for change
The bank, one of Europe’s largest by assets, is based in London, but generates much of its revenue in Asia.
The third-quarter results included an impairment of US$2.4 billion following the reclassification of its French retail banking operations as being held for sale and US$1.1 billion in reserves for potential soured loans to reflect the uncertain economic environment and continued pressure on mainland China’s commercial real estate sector.
By comparison, the prior year’s quarter included a release of US$659 million of reserves for potential bad loans.
The additional provisions for the Chinese commercial real estate book came as China’s economy grew at a greater-than-expected pace of 3.9 per cent in the third quarter, but remained below government growth targets for the year.
HSBC and its crosstown rival Standard Chartered took a combined US$539 million hit in impairments for potential soured loans in their Chinese commercial real estate books in the first half.
“We believe that there are still challenges ahead for the commercial real estate sector in China. We’re encouraged by some of the policy measures that have been taken in recent weeks and months to ease some of the financial pressure on that sector in China,” Quinn said on a conference call with journalists.
“There’s still quite a lot to work through. Therefore, it’s not possible to say that the charges we took in the third quarter are the last charges we’ll take on that sector,” he said.
HSBC’s shares declined 5.1 per cent to close at HK$39.95 in Hong Kong on Tuesday, following the announcement.
The bank said that Ewen Stevenson, 56, would step down as CFO at the end of the year after four years in the role, following a review of the lender’s group executive committee with a focus on long-term succession planning. Stevenson will leave the bank next April.
“It has been an absolute privilege to be part of the senior team leading a fundamental turnaround of the operating performance of HSBC over recent years,” Stevenson said. “I have strong confidence in the future of HSBC, and wish Noel, Georges and the rest of the senior leadership team well as they continue to deliver the strategy of the bank.”
Elhedery, 48, will assume the CFO’s role on January 1, with Greg Guyett becoming the sole CEO of global banking and markets immediately.
The results came as HSBC faces a challenging economic climate in Hong Kong, its biggest market, and in Britain, its second-largest market.
Hong Kong’s economy contracted in the first half of the year. Third-quarter numbers have not been released, but the government said in August that it expected gross domestic product (GDP) to grow in a range of minus 0.5 per cent to 0.5 per cent.
The city’s economy has been hit hard by zero-Covid protocols this year, but many of those restrictions, including required hotel quarantines, have been lifted in recent weeks ahead of a gathering of global financial heavyweights next month and the resumption of the Hong Kong Rugby Sevens for the first time since 2019.
The bank reported a 5.5 per cent decline in its pre-tax profit in its Hong Kong business to US$1.7 billion in the quarter. Overall, the bank’s Asian business reported a pre-tax profit increase of 6 per cent to US$3.5 billion.
Quinn said he was “very positive” on the outlook for Hong Kong.
“We see that Hong Kong could be one of those economies next year that actually has an economic rebound rather than an economic decline,” Quinn said.
HSBC is the first of Hong Kong’s biggest lenders to report their results. Standard Chartered is expected to report its results on Wednesday, while Bank of China (Hong Kong) is expected to do so on Friday.
At the same time, Britain is facing a cost-of-living crisis driven by high inflation and surging energy prices. Inflation topped 10.1 per cent in September.
Financial markets were unnerved by an economic plan by former prime minister Liz Truss to try to address the crisis, in part by making the largest cut in taxes in a half-century. Many of those tax cuts were rolled back ahead of her announcing her resignation on Thursday, after just six weeks in office.
Rishi Sunak, the former chancellor of the exchequer, is expected to officially be named prime minister later Tuesday after winning a leadership contest to replace Truss. Sunak lost to Truss in a separate leadership contest this summer.
HSBC’s British ring-fenced bank reported a 26.7 per cent decline in pre-tax profit to US$1.1 billion in the third quarter.
Stevenson said a recession is now HSBC’s “base case” for Britain over the coming quarters, but the bank is “well-positioned in what will be a tougher time for the UK”.
Revenue at HSBC declined by 15.5 per cent to US$12.5 billion in the third quarter, while net interest income rose by 30 per cent to US$8.6 billion in the period.
Net interest margin (NIM), an important measure of profitability, rose 38 basis points to 1.57 per cent, compared with 1.19 per cent in last year’s third quarter. It was 1.35 per cent in the second quarter.
In HSBC’s global banking and markets segment, pre-tax profit rose by 15.4 per cent to US$1.5 billion in the third quarter. The commercial bank reported a pre-tax profit of US$2 billion, compared with US$1.9 billion a year earlier.
Pre-tax profit in its wealth and personal banking segment fell to US$111 million in the quarter, compared with US$1.9 billion a year earlier.
