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HSBC Holdings announced a $3 billion share buyback and increased its income estimate, indicating progress in its plan.
HSBC Holdings has announced a $3 billion share buyback and upgraded its income outlook, signaling progress in its strategy to insulate its business from potential global interest rate cuts that could impact returns from lending.
The announcement led to a 3% rise in the bank’s shares in London, as investors responded positively to the bank’s stable first-half profit growth, gains in wealth management revenue, and narrowing losses in the Chinese real estate sector.
Europe’s largest bank set a new goal for its return on average tangible equity (RoTE) to be in the mid-teens by 2025, aligning with its estimate for 2024. This target is a critical performance metric for the bank as it seeks to reassure investors of its growth potential.
HSBC, which is set to appoint Georges Elhedery as CEO in September following the retirement of Noel Quinn, has implemented an insurance strategy known as a structural hedge to reduce its sensitivity to interest rate fluctuations. While a 1% decline in global interest rates in 2022 could have reduced HSBC’s annual revenue by $7 billion, the potential impact has now been mitigated to a $2.7 billion loss.
The bank’s new return target and earnings performance, which exceeded market expectations, have been positively received by investors and analysts.
Iain Pyle, a portfolio manager at HSBC shareholder abrdn, highlighted the reduced sensitivity to interest rates as a significant achievement.
Joe Dickerson, an analyst at Jefferies, noted that the bank’s valuation, at a discount to book value for a targeted mid-teens RoTE, positions it well as a high-quality bank with growth potential.
HSBC also announced an interim dividend of 10 cents per share, following a previous payment of 31 cents earlier this year.
The $3 billion share buyback is in addition to a $5 billion buyback announced earlier, bringing the total shareholder returns to $36 billion in dividends and $18 billion in buybacks during Quinn’s tenure as CEO.
In the first half of the year, HSBC reported a slight 0.4% decrease in pretax profit to $21.6 billion, surpassing the $20.5 billion average estimate from brokers. Wealth management revenue reached $4.3 billion for the period from January to June, a 12% increase compared to the same period in 2023. This growth was driven by higher investment distribution, private banking income, and expansions in asset management and life insurance.
HSBC’s proactive measures to reduce interest rate sensitivity and focus on wealth management and other growth areas underscore its resilience and strategic adaptability in a challenging global financial environment.
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