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A Leap in Profits

HSBC, Europe’s largest bank by assets, achieved an impressive financial feat in the third quarter of this year. The bank’s after-tax profit soared by a staggering 235%, reaching a remarkable $6.26 billion compared to the previous year’s $2.66 billion. This remarkable growth was also mirrored in its profit before tax for the same quarter, which jumped by $4.5 billion to a substantial $7.7 billion. This exceptional financial success was primarily attributed to the prevailing higher interest rate environment, which greatly benefited HSBC.

Meeting Expectations

Despite these outstanding numbers, they fell slightly short of economists’ expectations. Experts were projecting a third-quarter after-tax profit of $6.42 billion and a profit before tax of $8.1 billion. This divergence from expectations can be partially attributed to a $2.3 billion impairment recorded in the third quarter of 2022, connected to the planned sale of HSBC’s retail banking operations in France. However, it’s worth noting that $2.1 billion of this impairment was reversed in the first quarter of 2023 as the likelihood of the transaction’s completion became less certain.

Revenue Growth

HSBC’s revenue also exhibited a remarkable increase, surging to $7.71 billion in the third quarter, a significant rise from the $3.23 billion reported a year ago. Once again, this boost in revenue was largely credited to the higher interest rate environment. The favorable interest rate conditions supported growth in net interest income across all of HSBC’s global business segments. Notably, the net interest margin, a measure of lending profitability, stood at 1.7%, surpassing estimates and demonstrating a 19 basis points increase year on year.

Notable Shifts in Deposits

However, it’s important to mention that the net interest margin did experience a slight decline of two basis points compared to the previous quarter. This decline can be attributed to an increased number of customers shifting their deposits to term products, especially in Asia. HSBC remained transparent in acknowledging this shift.

Remarkable Year-to-Date Performance

Looking at the broader picture, HSBC’s performance for the first nine months of the year is truly remarkable. The profit after tax for this period amounted to $24.33 billion, a substantial increase compared to the $11.59 billion reported in the first nine months of the previous year.

HSBC Shareholder Rewards and Future Initiatives

In response to these impressive results, HSBC’s board approved a third interim dividend of 10 cents per share. Additionally, the bank revealed its intention to initiate a further share buyback program, which will amount to a substantial $3 billion. This buyback is expected to commence shortly and will be completed by the full-year results announcement on February 21, 2024. This commitment to rewarding shareholders has been a recurring theme for HSBC throughout the year, with three share buybacks totaling up to $7 billion and three quarterly dividends totaling $0.30 per share.

Financial Resilience and Future Plans

The buyback program, while beneficial to shareholders, is also expected to have a slight impact on HSBC’s common equity tier 1 capital ratio, or CET1 ratio, a crucial measure of financial resilience for European banks. Looking ahead, HSBC has strategic plans to reduce its CET1 ratio from the current level of 14.9% to a range between 14% to 14.5%. The bank also disclosed that its dividend payout ratio for 2023 and 2024, excluding notable material items, stands at 50%.