HSBC's Capital Growth Lifts Buyback Prospects -- 4th Update

By Margot Patrick and Julie Steinberg 

HSBC Holdings PLC's growing capital buffer raised hopes of extra payouts for shareholders, turning attention away from a weak third quarter for the bank.

HSBC shares rose 4% after the bank reported Monday that its main capital ratio jumped to 13.9% at Sept. 30 from 12.1% at the end of June, boosted by a regulatory change in the treatment of its stake in China's Bank of Communications. Analysts said that was good news for HSBC's dividend, and should mean additional share buybacks once a program currently under way is completed.

The lift came as the bank's pretax profit plunged 86% to $843 million from $6.1 billion in the third quarter, hit by a $1.7 billion charge for selling its Brazil business and a weakened pound and Mexican peso against the dollar. It posted a $204 million net loss in the quarter, against a $5.23 billion net profit in the same three months of 2015, largely because of the Brazil sale and changes in the value of its own debt.

HSBC has been pulling out of dozens of countries and businesses since 2011 to improve returns. In July, it completed the sale of HSBC Brazil to Banco Bradesco SA.

Adjusted revenue rose 2% to $12.79 billion, due in part to higher contributions from its fixed income businesses as the bank gained market share in Europe, HSBC said.

The overall weak results come against the backdrop of concerns about its Asia strategy and questions about the effects of the U.K. vote to leave the European Union. On Thursday, a U.K. court ruled that Prime Minister Theresa May can't start the exit process without approval from Parliament.

In the U.K., one of the bank's home markets along with Hong Kong, HSBC said mortgage lending and loans to small businesses rose in the third quarter, easing concerns that Brexit would stall activity.

"The U.K. bank's numbers have been reasonably robust since Brexit," Chief Executive Stuart Gulliver told reporters.

"What we obviously are concerned about is if next year we see lower GDP growth and higher inflation. Then the overall dynamic may start to shift, " he said in an interview Monday.

HSBC shares have risen 29% since August, when it unveiled a plan to spend up to $2.5 billion in the second half to repurchase shares.

The bank said it has completed 59% of its share-repurchase plan, which is expected to conclude in late 2016 or early 2017.

Analysts said Monday the bank could spend billions more to buy back additional shares in the next couple of years.

Mr. Gulliver said he couldn't comment on the projections, but that the growing buffer "does open up the possibility of us contemplating further buybacks in the future, subject to regulatory approval."

HSBC freed $5.6 billion after agreeing with the Bank of England that it should only hold capital against its equity investment in BoCom rather than against a share of BoCom's total assets.

Write to Margot Patrick at [e-mail] and Julie Steinberg at [e-mail]

(END) Dow Jones Newswires

November 07, 2016 05:42 ET (10:42 GMT)

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