HSBC Holdings Plc’s pivot to Asia is bearing fruit, helping the bank post its third consecutive increase in quarterly revenue just months before Chief Executive Officer Stuart Gulliver hands the reins to his successor John Flint.
Revenue from Asia yielded the biggest gains out of the bank’s five regions, helping the bank report higher-than-expected third-quarter adjusted revenue of $13 billion. During the period, the bank added $1.1 billion of loans in Guangdong, the southern Chinese province where the lender has targeted its expansion efforts, it said in a statement.
“Our pivot to Asia is driving higher returns and lending growth, particularly in Hong Kong and the Pearl River Delta,” Gulliver said in the statement. More broadly, “Growth in loans and advances translated into higher adjusted revenue in all three main global businesses,” he said.
HSBC’s focus on Asia means that Flint, a 28-year company veteran, will inherit in February a bank in expansion mode after years of belt-tightening. Gulliver spent much of his tenure shrinking and imposing central control over HSBC’s sprawling global network, exiting almost 100 businesses and 18 countries while dealing with several costly misconduct scandals.
In June 2015, HSBC said it would redeploy some assets to Asia, betting on higher returns as China’s economy expanded at a faster pace than Europe or the U.S. Just as the bank was putting an increased emphasis on China, that nation’s sharemarket imploded, but Gulliver stuck to his guns, saying the meltdown didn’t alter China’s strong fundamentals.
The adjusted revenue number reported by HSBC beat the average $12.7 billion estimate of 15 analysts compiled by the firm. Pretax profit for the third quarter fell 1 percent to $5.44 billion, compared with a projection of $5.41 billion.
The figures initially boosted the bank’s Hong Kong shares, which ended the morning session up 1.1 percent at HK$77.95. Those gains eased in the afternoon and the stock traded at HK$77.45 by 1:19 p.m. local time. It gained 25 percent this year after the bank announced plans to repurchase $5.5 billion of shares, with executives hinting they’re prepared to do more as the bank’s capital buffer grows.
Finance Director Iain Mackay has previously said as much as $8 billion could be repatriated from its U.S. operations and a portion of this would be allocated to buybacks. HSBC’s North American unit passed a Federal Reserve stress test in June, clearing the way for more than $3 billion of capital to be returned to shareholders, analysts said at the time.
With most banks in Europe slashing or eliminating their dividends to fund major restructuring programs, HSBC has been one of the few to consistently pay out since the financial crisis, distributing more than $20 billion since June 2015.
Revenue rose slower than costs — a measure the bank calls jaws — which management has identified as a strategic issue to address. Adjusted jaws was a negative 4.9 percent. Return on equity was below the bank’s target of more than 10 percent, coming in at 7.1 percent.
— With assistance by Paul Panckhurst
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