HSBC offers $3 billion buyback as wealth income offsets rate cut anxiety

By Selena Li, Sinead Cruise and Lawrence White

HONG KONG/LONDON (Reuters) -HSBC Holdings announced a $3 billion share buyback and upgraded its income outlook on Wednesday, as the bank showed progress in its efforts to shield its business from global interest rate cuts that may hit lending revenue.

The lender's shares rose 4% in London as investors cheered its stable first-half profit growth, gains in wealth management income and narrowing losses in Chinese real estate.

Europe's biggest bank also set out a new goal for its return on average tangible equity - a key performance target - to be in the mid-teens in 2025, matching its estimate for 2024.

HSBC, which is due to welcome new CEO Georges Elhedery in September following the retirement of Noel Quinn, said it had succeeded in reducing its sensitivity to rate cuts through an insurance strategy known as a structural hedge.

Whereas a 1 percentage point fall in global interest rates in 2022 would have wiped $7 billion off HSBC's annual revenue, Quinn told reporters that impact had dropped to a potential $2.7 billion hit as of June.

"It's notable for me that sensitivity to interest rates is reduced ... It has done well as interest rates rose but expectation is that will reverse quickly," Iain Pyle, a portfolio manager at HSBC shareholder abrdn, told Reuters.

The bank is well-priced as a high quality lender with growth potential and attractive shareholder distributions, he said.

The new return target and earnings that beat market expectations should give investors confidence, Jefferies analyst Joe Dickerson added.

The Asia-focused bank said it will pay an interim dividend of 10 cents a share, the second payment of 2024 following 31 cents announced last quarter.

The $3 billion share buyback followed a $5 billion buyback announced earlier this year. It means the bank will have paid shareholders $36 billion in dividends and $18 billion in buybacks over Quinn's tenure as CEO.

For the first six months this year, HSBC said pretax profit fell 0.4% to $21.6 billion but was better than the $20.5 billion average of broker estimates compiled by HSBC.

NEW CLIENT NUMBERS SURGE, CHINA LOSS NARROWS

HSBC reported an 8% rise in international customer numbers to 2.7 million in January-June, with 345,000 new-to-bank account openings in Hong Kong.

It also saw signs of relief in its exposure to a slowing economy and worsening property sector in China, after booking a $3 billion writedown on the market last year.

The bank's lending portfolio to China's real estate sector via its offshore Hong Kong hub dropped sharply in the first six months - by $1.5 billion or about one-quarter of the book - to $4.8 billion at end-June, due to repayments and write-offs.

"We can't rule out any additional ECL (expected credit loss), but we believe by and large, that would be nowhere near the ECL we've taken in the year of 2023," Elhedery told reporters on a conference call.

January-June wealth revenue rose 12% from the same period of 2023 to $4.3 billion, driven by a 16% increase in private banking income as well as other areas such as asset management.

Revenue at the lender's Global Banking and Markets investment banking unit grew 5%, benefiting from an upswing in its equities business, in line with trends at rival banks.

It upgraded its net interest income forecast for 2024 to around $43 billion from at least $41 billion.

The bank also named Jonathan Bingham as interim group chief financial officer, effective Sept. 2.

Bingham, who joined the bank in 2020 after 20 years at accounting firm KPMG, will retain his existing duties as global financial controller, HSBC said, as it continues the process of identifying a permanent CFO.

(Reporting by Selena Li in Hong Kong, Scott Murdoch in Sydney, and Lawrence White and Sinead Cruise in London; Editing by Christopher Cushing and Tomasz Janowski)