A surprise $2.5 billion share buy-back by HSBC (HSBA) has deflected investors’ attention away from pre-tax profits falling by almost a third in the first half of 2016

Shares in Europe’s largest bank by assets moved 3.8% higher to 501.2p, despite pre-tax profits being 29% lower at $9.7 billion in the six months to 30 June.

The buy-back will be funded from the proceeds of the $5.2 billion sale of the bank’s operations in Brazil in June.

The profit fall is the result of lower loan growth in the second quarter, down 4% to $888 billion year-on-year, and a weaker Asian market while lower interest rates added additional pressure. Net interest margin was 1.8%, down from 1.9% in 12 months.

News that dividend has been frozen until further notice has also been well received. Some investors may have expected a cut here as management fight falling profits and race to slice $5 billion from the expenses bill.

Investec’s Ian Gordon forecasts a 51cents (38p) a share payment for the full-year 2016, putting the stock on a 7.5% yield.

Web - HSBC - 3 August 2016


The board has reacted to uncertain and turbulent markets by scrapping plans to achieve a 10% return on equity in 2017. Investec forecasts this figure reaching 4% at the end of 2016.

Good news also came from its capital reserves being better than analysts had hoped at 12.1% of risk-weighted assets. This is the result of selling its operations in Brazil.

HSBC is no longer the world’s local bank, as its advertising would once of had you believe. It is re-positioning itself towards areas of high population growth, such as Asia, Africa and the Middle East.

This has seen it exit several countries in Europe and the Americas, including Turkey.

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Issue Date: 03 Aug 2016