Shares in banking giant HSBC (HSBA) gained 1% to 439.1p after it beat third quarter expectations and unveiled a $2 billion share buyback.

The somewhat muted response may reflect the fact the beat was driven by credit provision releases, or in other words the release of cash built up to cover bad loans which didn’t turn out to be as bad as expected through the pandemic.

For the third quarter, pre-tax profit profit increased by 74% to $5.4 billion year-on-year compared with a consensus forecast of $3.8 billion gathered by the company.

Expected credit losses saw a net release of $0.7 billion, compared with a $0.8 billion charge in 3Q20, reflecting ‘continued stability in economic conditions and better than expected levels of credit performance’ the company said.

The group’s net interest margin, a key measure of profitability in retail banking, was 1.19% or modestly lower on previous quarters.

Shore Capital analyst Gary Greenwood commented: ‘Management is positive on the prospect for near-term interest rate rises benefiting future net interest income (which has now stabilised) but is more cautious on costs due to inflationary pressures.

‘Insurance profitability is also expected to take a leg down in the 2022 financial year due to accounting changes. On balance, we think there is more to like than not in these results.’

Greenwood also noted that the buyback was ‘relatively small’ at less than 2% of the group’s overall market capitalisation.

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Issue Date: 25 Oct 2021