HSBC Hammered as Investors Ignore Buyback to Focus on Expenses

HSBC Hammered as Investors Ignore Buyback to Focus on Expenses

HSBC Holdings' new chief executive sought to cheer investors with a share buyback of up to US$2 billion (S$2.7 billion), even as the bank reported yesterday an unexpected 4 per cent drop in first-quarter pre-tax profit due to a surge in investments.

Europe's largest banks by assets posted profits before tax of $4.8 billion in the first three months of 2018, down by 4 percent, compared with the same period previous year, according to the bank's statement released on Friday.

The FTSE 100-listed lender's profit fall mainly reflected a13% rise in operating expenses which outpaced reported revenue growth of 6% to US$13.7bn thanks to higher deposit margins and balance growth, notably in Asia.

Hong Kong shares of HSBC extended their losses yesterday after the results, ending 3.5 per cent down at HK$74.95.

"We also made strategic hires in our securities joint venture in mainland China, and invested to enhance our digital capabilities in all our global businesses".

Europe's biggest bank by assets, which earns most of its profits in Asia, has long struggled to hit its cost control targets.

Still, the bank - the largest foreign bank operating in China - increased its investments on the mainland and in the United Kingdom in retail banking and wealth management.

He added that he was positive about the outlook for 2018.

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In 2017, HSBC returned a total of US$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.

HSBC said it has a strong capital base, with its common equity tier 1 ratio standing at 14.5% at the end of March, flat from the end of 2017.

Nevertheless, the first-quarter numbers still "represent a good start for 2018 for HSBC", Iain Mackay, HSBC's group finance director, told CNBC's Sri Jegarajah after the release of the results. It follows $5.5 billion worth of share repurchases HSBC has carried out in the previous two years.

Although some analysts had expected pre-tax profit to rise, the company pointed to higher costs in the first quarter in explaining the decline.

Mr Flint, HSBC's former global head of retail banking, took over from Stuart Gulliver in February, hours after announcing a lacklustre performance for 2017.

"We'll be interested to see how much the Hong Kong interest rate will benefit them", he said.

He added that commercial banking had made "notable progress" in Hong Kong and the United Kingdom, while retail banking and wealth management made further headway in the United Kingdom mortgage market.

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