Shares in HSBC (HSBA), the UK’s largest bank by market value, continued their recent rally, topping the FTSE 100 index with a gain of 6% to 338p after it posted better than expected third quarter profits and held out the prospect of a 2020 dividend payment early next year.
For the three months to the end of September the bank reported an 11% fall in revenues to $11.9 billion and a 36% fall in pre-tax profits to $3.1 billion, materially ahead of market forecasts of $2.1 billion.
LOWER PROVISIONS
The main contributor to the better earnings figure was a reduction in provision for bad loans or ‘expected credit losses’ from $800 million a year ago to just $100 million last quarter due to ‘a stabilisation of the forward economic outlook from the second quarter’.
Chief executive Noel Quinn described the results as ‘promising against a backdrop of the continuing impacts of Covid-19 on the global economy’ and said the bank was accelerating its transformation, ‘moving our focus from interest-rate sensitive business lines towards fee-generating businesses, and further reducing our operating costs’.
On that front, adjusted operating expenses were down 3% as the bank ramped up cost-cutting initiatives and reduced its discretionary spending.
The combination of lower provisions and lower costs helped boost the Core Equity Tier One capital to 15.6% from 15% in the second quarter, keeping it well above the regulatory minimum of 13%.
RETURN TO DIVIDENDS
With such an excess of regulatory capital, and with full year provisions for expected credit losses now seen at the low end of the bank’s $8 billion to $13 billion estimated range, the board is considering whether to pay a ‘conservative’ dividend for 2020 early next year.
The final decision depends on the economic outlook as the firm enters 2021 and is ‘subject to regulatory consultation’, but the mere hope that dividends might be re-started was enough to excite the market.
