HSBC moots dividend as 3Q profits exceed expectations

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HSBC moots dividend as 3Q profits exceed expectations

HSBC this morning reported pre-tax profits of $3.1bn in 3Q2020, significantly higher than analysts had expected, yet overall revenue fell by 11% YoY, to $11.9bn.

Based on what CEO Noel Quinn called a "promising" performance, the UK-based, Asian-weighted, bank said it was considering restating "conservative" dividend payouts through the coming year.

Last April HSBC incurred the wrath of its Hong Kong investors by cancelling its dividend following a Bank of England ban. The bank's shares in Hong Kong rose by 5.3% on news of the trading update.

Whereas HSBC's reliance on Asia can sometimes be a disadvantage, it may be beneficial at the moment. Data shows that while the economic recovery is floundering in Europe, it is proving resilient in the Far East. If that can continue, then it might help HSBC emerge from this crisis quicker than most."

Quinn said: "These were promising results against a backdrop of the continuing impacts of Covid-19 on the global economy."

He added, "I'm pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment."

HSBC is in the midst of the biggest overhaul in its history, with 35,000 jobs being shed. The bank said it was looking to widen the overhaul in some areas, and will provide a fuller update on the future of some of its underperforming business (paricularly its retail banking divisions in France and the US) in its next trading update in February.

In a statement HSBC, which is domiciled in London, said: "The financial impact to the group of geopolitical risks in Asia is heightened due to the strategic importance of the region, and Hong Kong in particular, in terms of profitability and prospects for growth."

"Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment."

Adam Vettese, an analyst at multi-asset investment platform eToro, says: "HSBC's results are not what shareholders will have wanted to wake up to this morning, but conditions in banking are tough at the moment."

"Record low interest rates mean profits are being squeezed, while there is a risk of a significant escalation in loan defaults if government support for workers fails to protect jobs."

"Therefore, it is unsurprising that HSBC has decided to trim some fat in order to maintain profits throughout what is an exceptionally trying time for the sector."

He pointed out that Asian strength could, despite global tensions, prove an advantage at this time: "Whereas HSBC's reliance on Asia can sometimes be a disadvantage, it may be beneficial at the moment."

"Data shows that while the economic recovery is floundering in Europe, it is proving resilient in the Far East. If that can continue, then it might help HSBC emerge from this crisis quicker than most."

The record low interest rates are impacting on banks' revenues across the world. HSBC, along with many other banks, is considering introducing a fee-based system.

HSBC's chief financial officer, Ewen Stevenson, told Reuters: "We will have to look at charging for basic banking services in some markets, because a large number of our customers in this environment will be losing us money."

 

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.