HSBC plans US$2.5b buyback in 2016 as pretax profit tumbles 45%

Commuters look out from a tram as they pass the local HSBC headquarters in Hong Kong on Aug 3, 2016.
Commuters look out from a tram as they pass the local HSBC headquarters in Hong Kong on Aug 3, 2016.PHOTO: AFP

LONDON (BLOOMBERG) - HSBC Holdings announced a US$2.5 billion share buyback as chief executive officer Stuart Gulliver tries to reverse a stock slump, while backing away from annual dividend increases and the timeline for a key profitability target.

Pretax profit fell 45 per cent to US$3.61 billion from a year earlier, Europe's largest bank said in a statement on Wednesday (Aug 3). This missedthe US$3.9 billion average estimate of 14 analysts compiled by the lender.

The bank removed a target of surpassing a 10 per cent return on equity by the end of 2017, citing economic and political uncertainties, while saying the goal remains "appropriate."

"Nothing that has happened in this turbulent period casts doubt on the strategic direction and priorities we laid out just over a year ago," chairman Douglas Flint, 61, said in a statement reflecting of the first half. He noted the "exceptional volatility" in financial markets triggered by the UK vote to leave the European Union.

HSBC is contending with slowing economic growth in China and the prospect of a recession in the UK, amid a programme to eliminate thousands of jobs and redeploy as much as US$150 billion of assets to Asia. CEO Gulliver, 57, and Flint, the longest-serving pairing at a big European bank, are nearing the end of their terms as Flint prepares to step down next year, with his replacement starting the search for a new CEO.

Since 2011, HSBC has slashed more than 87,000 jobs, exited at least 80 businesses and reduced the bank's vast global footprint to 71 countries and territories from 88. Alongside most other European banks, executives have been struggling to boost profitability in the face of record-low interest rates, misconduct fines and rising regulatory costs. That task has been made more difficult with the UK economy projected to slow after the country voted to leave the European Union.

In June last year, Gulliver detailed a new strategy to cut risk-weighted assets by about US$290 billion, about a quarter of the bank's total, while redeploying US$100 billion to US$150 billion of them to Asia.

HSBC's common equity Tier 1 capital ratio rose to 12.1 per cent, exceeding the average of forecasts compiled by the lender, from 11.9 per cent in December. The figure may be boosted to 12.8 per cent this quarter from the proceeds of the sale of the bank's Brazilian business, it said.

The bank's shares in Hong Kong fell 1.7 per cent to HK$49.95 as of the city's noon trading break on Wednesday, before the results were released. The stock lost 19 per cent this year.