HSBC Q2 earnings beat forecast, announces $2 billion share buyback

HSBC’s net profit more than doubled to $18.1 billion in the six months ended June, a sharp spike compared to the $9 billion in the same period a year before.

The bank’s profit before tax rose 147% year-on-year to $21.7 billion, up from $8.78 billion in the first half of 2022.

This figure included a $2.1 billion reversal of an impairment relating to the planned sale of its retail banking operations in France, as well as a provisional gain of $1.5 billion on the acquisition of Silicon Valley Bank UK.

In light of the strong results, HSBC’s board approved a second interim dividend of $0.10 per share, and announced a further share buyback of up to $2 billion, which “we expect to commence shortly and complete within three months.”

Asked when the bank’s dividend might return to pre-pandemic levels, CEO Noel Quinn told CNBC’s “Capital Connection” that “if all goes to plan this year, we should be above our pre-pandemic dividend level.”

HSBC paid out a total dividend of $0.51 in 2018, and $0.30 in 2019.

For 2022, the bank has already declared two interim dividends of $0.10 each, bringing the total amount of dividends paid to $0.20. Quinn said that “our final interim dividend at the end of the year, will be the balance to get us to a 50% payout ratio.”

In March, the U.K. arm of HSBC — Europe’s largest bank by assets — bought SVB U.K. for £1 ($1.21), in a deal that excludes the assets and liabilities of SVB U.K.’s parent company.

Revenue increased by 50% year-on-year to $36.9 billion in the first half, which HSBC said was driven by higher net interest income across all its global businesses due to interest rate rises.

Net interest income for the first half stood at $18.3 billion, 36% higher year-on-year, while net interest margin came in 46 basis points higher at 1.70%.

The strong performance was due to strong revenue growth across all business lines and all product areas, the CEO said. “Certainly, there’s an element of interest rates in there. But there’s also good growth in our fee income and trading income.”

For the second quarter alone, HSBC beat analysts’ expectations to report an 89% jump in pre-tax profit in the second quarter.

Pre-tax profit for the quarter ended in June was $8.77 billion, beating expectations of $7.96 billion.

Net profit was $6.64 billion, beating the $6.35 billion expected in analysts’ estimates compiled by the bank, jumping 27% compared to the same period a year before.

Total revenue for the second quarter came in at $16.71 billion, 38% higher than the $12.1 billion seen in the same period a year ago.

HSBC’s Hong Kong-listed shares rose 1.23% after the announcement.

Here are other highlights of the bank’s financial report card:

• Net interest income came in at $9.3 billion in the second quarter, compared to $6.9 billion in the same period a year ago.
• Net interest margin, a measure of lending profitability, rose 43 basis points year on year to 1.72% in the second quarter of 2023.

Moving forward, HSBC has also raised a key performance target, forecasting a near term return on tangible equity of 12%, compared to its previous target of 9.9%.

In fact, Quinn said that in the next two years, HSBC is expecting a “mid-teens” return on tangible equity, adding that “this is a broad-based delivery of profit and return.”

He sees future growth for HSBC coming from corporate banking, as well as international wealth and international retail banking for the affluent.

“We’re investing in areas that will drive growth beyond the interest rate regime there exists today. My job is to diversify the revenue. And I believe we’re starting to show evidence of that and we will continue to invest for diversification of revenue.”

Correction: This story has been updated to reflect that net interest margin rose 43 basis points in the second quarter of 2023. An earlier version misstated the year.