LONDON: HSBC Holdings Plc announced a US$2.5bil share buyback for this year, seeking to soften the blow to investors as global economic uncertainty prompted it to abandon a 2017 profitability target and step back from its plans to boost dividends.
Pre-tax earnings fell 45% to US$3.61bil from a year earlier, the bank said, and it removed a target of surpassing a 10% ROE by the end of next year.
Chief executive officer Stuart Gulliver said the dividend would stay at current levels for the foreseeable future, while the buyback would return half the equity freed up from selling its Brazil unit, with the rest boosting the firm’s capital ratio to 12.8%.
As one of the few global lenders left “we get paranoid about absolutely everything that happens everywhere; there’s a lot of political uncertainty around, and the Brexit vote would be a very good example of that,” Gulliver said in an interview.
“Very few banks are paying a dividend, so we are confident and we are an outlier actually in paying a substantial dividend at all.”
While the bank stepped back from its “progressive” dividend policy, many analysts had expected a cut from last year’s payout instead of maintaining that level.
“The buyback signals HSBC’s strong capital position and should reassure investors of its ability to maintain the current 51-cent dividend,” Citigroup Inc analysts led by Ronit Ghose wrote in a note to clients.
The shares climbed 1.4% at 2:38pm in Hong Kong yesterday. The stock is down 17% so far this year.
Pre-tax profit reported by the bank compared with the US$3.9bil average estimate of 14 analysts compiled by the lender. Second-quarter revenue fell 15% to US$14.5bil, beating the US$13.6bil average estimate. Operating expenses were US$10.4bil, more than the US$9.2bil analysts expected.
Charges for bad loans were US$1.2bil, more than the forecast US$1.1bil, as the bank suffered higher charges from bad debts in the oil and gas, and metals and mining sectors, particularly in the US and Canada, finance director Iain Mackay said in a telephone interview.
The lender cited economic and political uncertainties for abandoning the timing of its return-on-equity target, while saying the 10% goal remains “appropriate.” The bank posted a 7.4% return in the first half, down from 10.6% a year earlier. — Bloomberg
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