Last week, Barclays announced their Quarter 3 Results for 2021. Costs have increased slightly, but so far in 2021 the bank has generated £16.8bn in income with a Cost:Income ratio of 64%, compared to 60% from the same period in 2020. Today it was HSBC’s turn.
HSBC focused more on the Quarter itself announcing that “All regions profitable in 3Q21, demonstrating continued earnings diversity”. Asia, the focus for many large international banks, contributed $3.3bn to Group reported profit before tax, while in HSBC UK reported profit before tax increased by $1.0bn to $1.5bn.
More importantly though, HSBC reported its revenue was down 3%, from earnings to date at the same period in 2020, to $37.6bn by end of Q3 2021. Last year the bank made over $50bn in revenue. HSBC also expects adjusted costs of approximately $32bn for 2021 and 2022, meaning they have a chance to beat the Cost:Income ratio that Barclays have generated.
Noell Quinn, Group Chief Executive of HSBC said:
“We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases. Our strategy remains on track, with good delivery in all areas. This was reflected in more consistent top-line growth, robust lending pipelines across our businesses, and rising trade and mortgage balances.
“While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us. This confidence, together with our strong capital position, enables us to announce a share buyback of up to $2bn, which we expect to commence shortly.”
HSBC’s share buyback announcement
2021 has been a big year for buybacks, for the 12-month period up to the end of Q1 2021 it is reported that Apple spent $89.7bn on buybacks, up from the prior period’s $76bn. Other firms using buybacks include Alphabet, Facebook, Oracle and Microsoft. The sums being invested in buybacks are substantial too. Even more than HSBC is reporting they will invest.
JP Morgan and Bank of America have also instigated buybacks so far in 2021. Whilst VISA and Mastercard, from the financial services sector, are also participants in the growing trend.
The important thing for most investors is that HSBC’s shares will likely remain attractive as an investment option. TradingView give them a ‘Buy’ with several recommendations on the site. Considering the 2020 performance of the bank, this is high praise.
Rob Murphy, Managing Director of Financials at Edison Group, commented:
“Following Barclays posting strong quarterly results last week, HSBC has followed suit with Q3 pre-tax profits of $5.4bn (£3.9bn) compared to $3.1bn (£2.2bn) at the same time last year, easily beating City forecasts of $3.8bn as continued global economic stability has enabled strong levels of debt repayment. Adjusted pre provision profit was down ca 1% to $4.6bn on slightly lower revenues and costs however the group has now posted 2 consecutive quarters of adjusted net interest income growth which will benefit further should interest rates increase.
“$700m of reserves previously put aside for bad loans was released, enabling management to announce a share buyback of up to $2bn, but inflationary pressures have resulted in cost projections for 2022 to have increased to $32bn up from $31bn, though rising rates will help increase revenues to offset some of this.
“HSBC is benefitting from a focus on key growth markets in Asia and continues to direct resources away from Europe and North America. It is looking to spend $6bn over the next five years to expand in China, Hong Kong and Singapore, in particular through its wealth business with the hiring of as many as 5,000 new advisors to support growth. Looking ahead, interest rates will be a key driver in the near-term whilst longer-term the bank’s strategy of focusing on higher growth Asian markets will be a key differentiator.”
It can never be called a ‘gamble’, the way that HSBC approached their strategic vision for Asia. However, it does appear that the ‘gamble’ has ‘paid off’. Whilst others are merely watching how the economics of Asia are unfolding, HSBC have not only made their vision profitable, the bank is also profitable in all the diverse parts of its’ business.
Author: Andy Samu
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