HSBC Profit Surge Faces Cost Pressures: HSBC Holdings disclosed a notable 240% increase in third-quarter pre-tax profit, driven by higher interest rates that boosted profitability and supported a new $3 billion share buyback program.
This development underscores the bank’s imperative to meet investor expectations amidst a backdrop of rising global interest rates. However, despite the profit more than doubling in the third quarter, it fell short of analysts’ projections due to increased costs.
HSBC also indicated that its costs are expected to rise by 4% this year, surpassing its earlier target of a 3% increase. This rise can be attributed to growing technology and operational expenses, along with contemplations of boosting staff bonuses in the fourth quarter.
For the period spanning July to September, HSBC reported a pre-tax profit of $7.7 billion, a significant increase from $3.2 billion the previous year. However, this outcome lagged behind the $8.1 billion mean average estimate provided by brokers associated with HSBC.
The bank, headquartered in London with a market value of $118.6 billion, aims to complete the share buyback program by February of the next year, thereby bringing the total buybacks announced in the year to $7 billion. In addition, it distributed its third interim dividend payout of 10 cents per share this year, making the total payout to 30 cents per share.
HSBC’s third-quarter net interest margin slightly decreased by 2 basis points to 1.70% compared to the prior quarter. This adjustment was driven by customers moving their deposits into term products, particularly in the Asian markets.
Within the Q3 results, the bank reported a $500 million impairment linked to the commercial real estate sector in mainland China. In response, HSBC stated, “We continue to monitor risks related to our exposures in mainland China’s commercial real estate sector closely, and there remains a degree of uncertainty in the forward economic outlook, particularly in the UK.”
HSBC’s Asia-focused peer, Standard Chartered, recently experienced an unexpected one-third decline in third-quarter profit, attributed to a combined hit of nearly $1 billion from its exposure to China’s real estate and banking sectors. Delivering strong results and navigating evolving economic dynamics presents a challenge for the banking giant.