HSBC profits drop 29 percent
(3 August 2016 – United Kingdom) In its latest earnings update, HSBC announced a US$2.5 billion (A$3.3 billion) share buy-back, easing concerns of 29 percent drop in pretax profits between January and June.
A combination of factors, including Britain's vote to leave the European Union and slowing growth in China has forced the London based bank to "remove a timetable" for reaching its targeted return on equity (RoE) in excess of 10 percent by the end of next year, which currently stands at around 7.4 percent.
Group Chief Executive Stuart Gulliver said the bank had removed the word "progressive" from its guidance on dividend payout plans, as a reflection of tougher market conditions.
"'Progressive' was interpreted by everyone as meaning it is going to go up every quarter notwithstanding what is happening in the world, so what we are saying is we are committed to sustain the dividend at the current level," he said.
Gulliver told reporters that the bank’s core equity ratio would move to 12.6 percent from 12.1 percent at the end of June, following the buy-back, in line with the bank's target range of 12-13 percent.
The bank could announce further buy-backs up to the value of the entire Brazil disposal in the future, Gulliver said, depending on the global economic outlook next year and beyond.
HSBC's reserves could be boosted yet further as the bank repatriates capital 'trapped' in the United States following the sale of assets from its disastrous 2003 purchase of consumer lender Household.
The core capital ratio in HSBC's North America business was in the mid-20s and Gulliver said it could remit a 'material sum' as dividends to the bank's London-based holding company, boosting the Group's capital further.
Gulliver said that small business lending had reduced since the referendum, however wider impact had been “muted”. Additionally, HSBC is battling with a soft Asian market, reporting an eight percent drop in first-half profits.
"Our plans haven't changed in China... but we are saying the redeployment of capital will take longer," Gulliver said, adding the country’s drop of in economic growth and volatile currency was responsible.
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