HSBC offers up to $2.7b in new share buyback plan

Move comes as biggest EU bank posts 4% decline in pre-tax profit for Q1

HONG KONG • HSBC Holdings' new chief executive sought to cheer investors with a share buyback of up to US$2 billion (S$2.7 billion), even as the bank reported yesterday an unexpected 4 per cent drop in first-quarter pre-tax profit due to a surge in investments.

Europe's biggest bank by assets, however, said that this would likely be the only share buyback this year, as CEO John Flint looks to deploy more capital into its businesses to tap growth opportunities.

In 2017, HSBC returned a total of US$3 billion to shareholders through share buybacks and paid more in dividends than any other major European or American bank, while maintaining its capital buffers as revenue grew.

That came on the back of its restructuring strategy unveiled in 2015, which included boosting its presence in Asia, to turn around the bank's performance, which suffered from regulatory costs and the consequences of a pre-2008 era of excessive empire-building.

"Our strong capital, liquidity and robust balance sheet continue to support strong revenue growth from retail and corporate customers across our network," Mr Flint, who took over as CEO in February, told Reuters after the results announcement.

"This has enabled us to announce a further share buyback,"he said. "We are investing to grow revenue further."

RISE IN OPERATING COSTS

We also made strategic hires in our securities joint venture in mainland China, and invested to enhance our digital capabilities in all our global businesses.

HSBC CEO JOHN FLINT, attributing the rise in costs to investment in its retail banking businesses in its core markets of Britain and China.

The bank's pre-tax profit was US$4.76 billion for the three months ended March 31, compared with US$4.96 billion in the year-ago period. The profit in the latest quarter was below the US$5.76 billion average of analysts' estimates compiled by the bank.

The bank's profit shrank mainly as a nearly 13 per cent rise in operating expenses outpaced revenue growth of 5.5 per cent. HSBC said the rise in costs was due to investment in its retail banking businesses in its core markets of Britain and China.

"We also made strategic hires in our securities joint venture in mainland China, and invested to enhance our digital capabilities in all our global businesses," Mr Flint said in a statement.

He plans to double down on HSBC's "pivot" to Asia and China in particular, despite some setbacks in the plan launched in June 2015.

The main pillar of that strategy is centred around the fast-growing Pearl River Delta region in southern China that borders Hong Kong. HSBC seeks to make it its gateway to the world's second-largest economy.

The bank made over 75 per cent of its profits in Asia last year.

Hong Kong shares of HSBC extended their losses yesterday after the results, ending 3.5 per cent down at HK$74.95.

The biggest question for HSBC investors looking forward is what strategy Mr Flint will adopt to boost growth after years of restructuring and shrinking.

One of the biggest decisions he will have to make is over HSBC's perennially underperforming US business, which has been barely profitable in recent years as it suffers from being sub-scale relative to domestic rivals.

Mr Flint said yesterday the bank would not look to acquire a domestic business in the US to increase its scale there, contrary to what had been mooted in media reports earlier this year.

"There is no straightforward inorganic solution, there's no quick fix," he said.

HSBC's common equity tier 1 ratio - a measure of financial strength - was 14.5 per cent at the end of March, flat compared with end-December and higher than 14.3 per cent in the first quarter of last year.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 05, 2018, with the headline 'HSBC offers up to $2.7b in new share buyback plan'. Print Edition | Subscribe