HSBC Holdings Unveils $3B Buyback and Income Boost

HSBC Holdings (HSBA.L) announces a $3 billion share buyback and upgrades its income outlook, demonstrating resilience against global interest rate cuts.

HSBC Holdings (HSBA.L) has recently made headlines with a bold announcement of a $3 billion share buyback, coupled with an optimistic upgrade to its income outlook. This move comes as the bank demonstrates notable progress in its strategic efforts to insulate its operations from the potential adverse effects of global interest rate cuts, which could otherwise dampen lending revenue.

In a display of investor confidence, HSBC's shares surged by 4% in London, buoyed by the bank's stable profit growth in the first half of the year, an uptick in wealth management income, and a reduction in losses associated with the Chinese real estate market. As Europe's largest bank, HSBC has set an ambitious new target for its return on average tangible equity—a critical performance metric—aiming for mid-teens by 2025, aligning with its projections for 2024.

With the impending arrival of new CEO Georges Elhedery in September, following the retirement of Noel Quinn, HSBC has successfully mitigated its vulnerability to interest rate fluctuations through a strategic insurance mechanism known as a structural hedge. To put it into perspective, a 1 percentage point decline in global interest rates in 2022 would have resulted in a staggering $7 billion loss in annual revenue for HSBC. However, as of June, Quinn reported that this potential impact has been significantly reduced to a mere $2.7 billion.

The bank's robust positioning as a high-quality lender with promising growth prospects and appealing shareholder returns is underscored by its new return target and earnings that have exceeded market expectations. In a show of commitment to its shareholders, HSBC announced an interim dividend of 10 cents per share, marking the second payout of 2024, following a previous distribution of 31 cents.

This latest $3 billion share buyback follows an earlier $5 billion buyback announced earlier this year, bringing the total shareholder returns during Quinn's tenure to an impressive $36 billion in dividends and $18 billion in buybacks. For the first half of this year, HSBC reported a slight decline in pretax profit, down 0.4% to $21.6 billion, yet this figure surpassed the $20.5 billion average forecast from brokers.

Additionally, HSBC experienced an 8% increase in its international customer base, reaching 2.7 million from January to June, with 345,000 new accounts opened in Hong Kong. The bank also noted signs of stabilization in its exposure to the slowing Chinese economy and the beleaguered property sector, following a substantial $3 billion writedown last year. Its lending portfolio to China's real estate sector, managed through its offshore Hong Kong hub, saw a significant contraction of $1.5 billion—approximately one-quarter of the total book—bringing it down to $4.8 billion by the end of June, primarily due to repayments and write-offs.

Wealth revenue for the January to June period rose by 12% compared to the same timeframe in 2023, totaling $4.3 billion, driven by a 16% increase in private banking income alongside growth in asset management. Furthermore, revenue from HSBC's Global Banking and Markets investment banking division grew by 5%, benefiting from a resurgence in its equities business, mirroring trends observed among rival institutions. The bank has also revised its net interest income forecast for 2024, now projecting around $43 billion, up from a previous estimate of at least $41 billion.