HSBC Bank Q3 Profit Beats On Growth, Cost Control

by Ike Obudulu Posted on October 29th, 2018

London, UK : Shares of HSBC Holdings Plc (HSBC,HSBA.L) increased more than 4 percent in Hong Kong and London trading after the Asia-focused lender reported Monday significant growth in its third-quarter earnings and revenues mainly with improved results in three main businesses and lower costs.

John Flint, Group Chief Executive, said, “These are encouraging results that demonstrate the revenue potential of HSBC. We are doing what we said we would – delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs. We remain committed to growing
profits…”

“The strong revenue environment continues to enable us to invest in growth and in the simplification of the organisation to make it easier for our customers to bank with us and for colleagues to do their jobs,”

For the third quarter, profit before tax increased 28 percent to $5.92 billion from $4.62 billion a year ago. Profit after tax was $4.52 billion, higher than $3.51 billion in the previous year. Earnings per share were $0.19, higher than $0.15 in the year earlier.

Adjusted profit before tax was $6.19 billion, compared to $5.33 billion in the previous year. Profit increased in all regions, except Middle East and North Africa, and Latin America.

Reported operating expenses of $8.0 billion were 7% lower than in the prior year.

Revenue for the period was $13.80 billion, up from $12.98 billion last year with strong revenue growth in three main global businesses.

Adjusted revenue rose 9 percent to $13.84 billion, excluding the effects of foreign currency translation differences and movements in significant items.

Capital base remained strong with a common equity tier 1 or CET1 ratio of 14.3% and a CRD IV leverage ratio of 5.4%.

The company in June had outlined its plans to bring HSBC back to growth and create value for shareholders. The company now said it is starting to see progress.

Retail Banking and Wealth Management and Commercial Banking built on the momentum generated in the first half of the year, with both using the benefits of past investment to grow lending and deposit balances. Adjusted revenue growth in Retail Banking and Wealth Management came primarily from current accounts, savings and deposits, particularly in Hong Kong.

In Commercial Banking, all of its transaction banking businesses generated higher adjusted revenue, including a sixth consecutive quarter of double-digit year-on-year adjusted revenue growth in Global Liquidity and Cash Management.

Global Banking and Markets had a very good quarter on the back of the firm’s strength in transaction banking and Foreign Exchange.

In London, HSBC shares were trading at 631.07 pence, up 4.31 percent.

In Hong Kong, HSBC shares gained 4.79 percent and traded at HK$63.40.

The Asia-focused banking giant has been on a recovery and huge restructuring drive in recent years to streamline the business.

Flint said in June that he plans to invest up to $17 billion primarily in growth and technology projects, with a particular focus on accelerating business in Asia.

He was promoted to the top job after serving as the lender’s head of retail banking and wealth management.

Dickie Wong, executive director of research at Kingston Securities, said the “better than expected earnings will give a big boost to its share price”.

The London-based group should be able to weather the US-China trade conflict given its strong operating figures such as the cost efficiency ratio and favourable results in the last few quarters, Wong added, putting the bank “in a better shape compared to its peers”.

But he warned its lending and interest-related income could be affected by Hong Kong’s softening property market, as major banks in the financial hub have had to raise their lending rates in lockstep with the Federal Reserve and the Hong Kong Monetary Authority.

The improving global economy has led central banks around the world to either lift borrowing costs or at least consider lifting them as the decade of post-crisis easy money comes to an end.

After some strong profitable years under Stuart Gulliver before his retirement, HSBC earnings plunged in 2016 on huge writedowns and restructuring charges.

However, they rebounded strongly last year, in part thanks to a strong Asian performance.

After wide-ranging cutbacks that saw 50,000 jobs axed in an overhaul announced in 2015, the bank is now planning to hire again as it seeks new growth areas.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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