HSBC surprised the market with a 74% hike in profits in the third quarter due to an improving economic backdrop.
The bank registered a pre-tax profit of $5.4bn in the quarter to September, up from $3.1bn a year ago, outstripping analysts’ average expectations of $3.78bn.
The UK-headquartered bank noted continued economic stability helped increase its profits, as improving conditions allowed customers to repay their debts on time.
This enabled HSBC to release $700m of cash that had been set aside for bad loans that had not materialised, adding to the $700m it had already released this year.
Strong confidence in the worst effects of the pandemic being over also prompted HSBC to launch a $2bn share buyback programme.
The bank’s performance is a significant improvement over 2020, when profits slumped 45% as banks were hit by historically low rates, a slowdown in trade and the fallout from global lockdowns.
HSBC also credited its “pivot to Asia” strategy for boosting third quarter results. The region contributed $3.3bn to the total profit take compared to the $1.5 bn of its UK business.
This was due to strong equity trading activity from its wealth management clients in the region, its main profit centre, and volatility in Hong Kong and Shanghai stock exchanges
The bank acquired insurer Axa’s Singapore business in August, which it called a crucial step in its plan to be a leading wealth manager in Asia.
HSBC merged its retail and wealth units last year as part of a global restructure to shift its focus to rising incomes in Asia and away from its struggling businesses in the US and parts of Europe. The combined business has $1.4tn of assets, more than half of which are in Asia.
“While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us,” said Noel Quinn, HSBC’s group chief executive.
He added, “We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases. Our strategy remains on track, with good delivery in all areas
This was reflected in more consistent top-line growth, robust lending pipelines across our businesses, and rising trade and mortgage balances.”
Rob Murphy, managing d irector of Financials at Edison Group, notes, “HSBC is benefitting from a focus on key growth markets in Asia and continues to direct resources away from Europe and North America.
He adds, “It is looking to spend $6bn over the next five years to expand in China, Hong Kong and Singapore, in particular through its wealth business with the hiring of as many as 5,000 new advisors to support growth.
Looking ahead, interest rates will be a key driver in the near-term whilst longer-term the bank’s strategy of focusing on higher growth Asian markets will be a key differentiator.”
©Markets Media Europe 2021
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