According to Reuters, HSBC is looking to mollify investors with a huge share buyback of over $2 billion. The bank announced that there is an unexpected 4 percent drop in the first-quarter pre-tax profit because of a spending surge.
Europe’s largest bank by assets said that it is currently experiencing massive growth opportunities. And if this continues, it expects to see a share buyback previously announced this year. In fact, the process is already said to jumpstart anytime.
HSBC’s pre-tax profit currently sits at $4.76 billion and covers three months (ended on March 31). This is a huge bump considering its pre-tax profit from the year-ago period which is $4.96 billion. As for the profit from the last quarter, it was below the average of analysts’ estimates, as it only reached $5.76 billion.
Around 0750 GMT, the bank’s shares fell around 2.5 percent in London. Still, it is deemed as a sign of immediate investor skepticism. The latter refers to the bank’s new investments, which, in some ways, will eventually pay off after years of spending and focusing on removing unprofitable aspects of the business.
HSBC CEO John Flint is poised to invest rather in HSBC’s twin homes, which are in Britain and China. Of course, considering the numbers, this is still a bid to boost possible returns. Flint, while speaking to analysts, said: “For us to get to a 10 percent return on equity, we will have to grow the business, it’s very hard to get there just by shrinking the cost base.”
Interestingly, the bank took a surprise provision worth $897 million against expected settlements for previous misconduct cases. The said cases, according to official reports, included a U.S. Department of Justice investigation into the bank’s sale of toxic mortgage-based securities.
The provision, in particular, is proof that the bank has at least managed to advance its talks with the official authorities. It is worth noting that HSBC and other banks including the Royal Bank of Scotland (RBS.L) are inching towards settling their respective involvement in the sale of the products. This was during the buildup to the infamous 2007-2008 crisis.
Sometime in 2017, HSBC returned a total of $3 billion to all its shareholders, and it was done through share buybacks. It even paid more in terms of dividends, something that surpasses any other major American or European bank. HSBC did all of these while successfully maintaining its capital buffers as its revenue grew.
Apparently, this success was due to its restructuring strategy introduced in 2015. It included a boost of its presence in Asia, a move that was meant to optimize the performance that greatly suffered from the consequences of a pre-2008 era. This was the same era when excessive empire-building became a notion.
Going back to the bank’s profit shrank, it is now as nearly as 13 percent rise in every operating expense, outpacing revenue growth of 5.5 percent. HSBC explained that the rise in cost was because of the investment done to its retail banking in its core markets, namely, Britain and China.
With that said, Flint now wants to double down on the bank’s “pivot” to Asia, particularly in China. And he promises to do this despite a number of setbacks in the plan which was launched in June 2015.
The main pillar of the bank’s strategy is heavily centered on the ever-growing Pearl River Delta region in the southern part of China. It basically borders Hong Kong, and it is where HSBC hopes to build a gateway to the world’s second-largest economy. It should be noted that the bank was able to accumulate profits of around 75 percent in 2017.
Of course, the biggest question here – at least for the investors – is what strategy HSBC will utilize in order to boost growth after years of shrinking and restructuring. Flint, however, said that “there’s no quick fix,” but rather a “straightforward inorganic solution.”