HSBC’s third-quarter earnings beat estimates, boosting CEO’s plan to revitalise Europe’s largest bank

  • Third-quarter adjusted pre-tax profit rose 16 per cent to US$6.19 billion
  • Flint says strategy unveiled in June is no way impacted by global headwinds
PUBLISHED : Monday, 29 October, 2018, 12:13pm
UPDATED : Monday, 29 October, 2018, 10:46pm

HSBC earnings in the third quarter rose 32 per cent, mirroring strong performances by its banking rivals and giving chief executive John Flint a boost as he seeks to revitalise the lender.

Europe’s largest bank reported a profit of US$3.9 billion in the period compared with a profit of US$2.96 billion at the same stage last year.

On a pre-tax, adjusted basis, the bank, which is based in London but generates more than half of its revenue in Asia, said its profit was US$6.19 billion, ahead of an average estimate of 11 analysts surveyed by Bloomberg.

“We are starting to unlock the revenue potential of HSBC”, Flint said on a conference call with analysts. “We’re doing what we said we would: increasing revenue from areas of strength, improving returns and investing in the business while keeping a tight hold on costs”.

HSBC’s shares closed up about 5 per cent at HK$63.55 in Hong Kong on Monday and were up nearly 5 per cent in early trading in London.

Wall Street banks, including JP Morgan, Goldman Sachs and Morgan Stanley, and European rivals UBS and Barclays reported double-digit gains in profits in the third quarter as investment banking revenue rose higher and the American banks benefited from corporate tax cuts in the United States.

Deutsche Bank, which is in the midst of its own turnaround efforts, was one of the few laggards among the big banks that have reported so far. The bank’s profit dropped by 65 per cent in the three months ended in September.

Flint took the reins at HSBC in February, replacing long-time CEO Stuart Gulliver. Flint, who has spent his entire career at the bank, has been tasked with trying to increase its profitability and growth.

The lender, which once dubbed itself “the world’s local bank”, has pivoted to Asia after years spent paring back its operations following the global financial crisis.

Last week, HSBC said that it would offer unsecured personal loans via a new digital platform in the US, a market where it has remained a smaller player for consumer lending.

The size of its US consumer lending business has reflected the legacy of its 2002 deal for the American finance company Household International. HSBC closed the business seven years later as it was hit by the collapse of the US subprime loan market.

In recent years, HSBC also has been trying to overcome reputational damage suffered for a variety of accusations by regulators of misconduct by the bank ahead of the financial crisis.

Last year, HSBC emerged from a long-running deferred prosecution agreement with US authorities. It agreed to pay US$1.9 billion in 2012 to resolve accusations that it had facilitated transactions by Mexican drug lords and others facing US sanctions.

The results announcement came just over a year after Mark Tucker joined HSBC as its first outsider chairman from the Asian life insurer AIA Group.

It also came after the release last month of a leaked memo purportedly written by unnamed HSBC executives that called out its investment banking division, saying there was an “utter failure of leadership” in the business.

Memo calls out ‘failure of leadership’ in HSBC’s investment bank

The bank has moved recently to bolster the division by making several external hires, including Greg Guyett, a former JP Morgan banker, as co-head of its investment bank.

HSBC is one of three lenders that issue bank notes in Hong Kong. It employs more than 228,000 people in 67 countries worldwide and its shares are widely held by retail investors in Hong Kong.

Last month, HSBC became the first of several commercial banks in Hong Kong to raise its prime rate, ending a decade of cheap lending in the city. The move came after the US Federal Reserve and the Hong Kong Monetary Authority lifted rates for a third time this year in September.

HSBC raises Hong Kong prime rate for the first time in a decade

Flint said the likelihood that more of the future rate increases will be passed along to consumers than at earlier stages in the cycle is “real”.

Revenue increased 6 per cent to US$13.8 billion in the third quarter, compared with US$12.9 in the third quarter of 2017. Net interest income rose 8 per cent to US$7.68 billion in the quarter.

Expenses declined 7 per cent in the quarter, but were up about 2 per cent for the nine months ended in September. The bank has said that it would spend US$15 billion to US$17 billion in new investment by 2020 as part of its Asia pivot and to improve its technology.

In its retail banking and wealth management segment, profit before tax jumped 28 per cent to US$2.03 billion in the third quarter.

Pre-tax profit rose 15 per cent to US$1.89 billion in the lender’s commercial banking business in the period, while profit before tax increased 18 per cent to US$1.81 billion in its global banking and markets business in the third quarter.

HSBC said the credit market remains stable despite the escalating trade tensions between the US and China. Flint said there is no evidence as yet of stress arising from those tensions.

“There are some global headwinds or reason for anxiety - the trade war, Brexit, equity market jitters - none of those, at this stage, have changed the strategy that we’re employing,” Flint said. “The strategy that we unveiled in June is no way impacted by these global uncertainties.”