HSBC earnings fall short of expectations on increased costs; to buy back $3 billion worth shares

HSBC Holdings announced a 240 per cent increase in pre-tax profit for the third quarter, attributed to higher interest rates that bolstered the bank's profitability. The surge in earnings allowed HSBC to initiate a new $3 billion share buyback program. 

However, while the third-quarter results marked a significant financial upturn, they fell short of analysts' expectations, primarily due to elevated costs.

As interest rates worldwide continue to rise, Europe's largest bank faces mounting pressure to meet the expectations of its long-suffering investors. Despite its pre-tax profit more than doubling to $7.7 billion in the July to September quarter compared to $3.2 billion in the previous year, the results failed to meet the mean average estimate of $8.1 billion compiled by HSBC.

HSBC acknowledged that costs are expected to increase by 4 per cent this year, surpassing its earlier target of a 3 per cent rise. This cost escalation is attributed to growing technology and operational expenses, along with the potential for enhanced staff bonuses in the fourth quarter. The bank plans to complete the $3 billion share buyback by next February, bringing the total buybacks announced in the year to $7 billion.

Furthermore, HSBC distributed its third interim dividend payout for the year, providing 10 cents per share and bringing the total dividend payout to 30 cents per share. The bank's net interest margin for the third quarter experienced a slight contraction of 2 basis points to 1.70 per cent, mainly due to customers shifting their deposits to term products, particularly in Asia.

In its quarterly report, HSBC disclosed a $500 million impairment related to the commercial real estate sector in mainland China. The bank expressed a commitment to closely monitoring risks associated with its exposures in mainland China's commercial real estate sector, given the ongoing uncertainty in the economic outlook, especially in the UK.

This financial update comes after HSBC's Asia-focused competitor, Standard Chartered, reported an unexpected one-third decline in third-quarter profit last week, primarily attributable to a nearly $1 billion combined impact from its exposure to China's real estate and banking sectors.

(With Reuters Inputs)