HSBC buoyed by $2.5bn buyback as profits plunge

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A surprise $2.5 billion (£1.9 billion) share buyback cheered investors in Europe’s largest bank HSBC, even as it reported a 45% fall in second-quarter profits. 

The unexpected handout represents half the $5.2 billion HSBC received for selling its Brazilian business last month.

The move has been sanctioned by the Bank of England, which believes HSBC has enough capital.

HSBC shares rose 18.7p, or 4%, to 501.5p, the biggest gain since April. 

Second-quarter profits dropped from $6.6 billion to $3.6 billion, with profits for the first half down from $13.6 billion to $9.7 billion on lower revenues and higher bad debt writedowns. 

Chairman Douglas Flint, who is set to stand down next year, said: “The first half was characterised by spikes of uncertainty, which greatly impacted business and market confidence.”

He said concerns over China’s economic growth in the first quarter had been succeeded in the second quarter by uncertainty over Brexit. 

Flint also warned: “It is evident that we are entering a period of heightened uncertainty, where economics risks being overshadowed by political and geopolitical events.”

Chief Stuart Gulliver added: “Following the outcome of the referendum on the UK’s membership of the European Union, there has been a period of volatility and uncertainty, which is likely to continue for some time.”

That outlook led HSBC to drop its planned target of a 10% return on equity by the end of next year and to change from a “progressive” dividend policy to merely “sustaining the dividend at current levels”.

Gulliver, also expected to step down once Flint’s successor has been found, said: “Progressive was interpreted by everyone as meaning it is going to go up every quarter notwithstanding what is happening in the world, so what we are saying is we are committed to sustain the dividend at the current level.”


Outgoing: Stuart Gulliver and Douglas Flint (Bobby Yip/Reuters)

He said the bank was watching its loan book closely following the Brexit vote but said it was too early to say if particular areas of the UK economy were under pressure. However, he added there had been fewer applications for loans from small businesses since the vote. 

Gulliver, who has sold or closed more than 80 businesses and shed 87,000 jobs at the bank since 2011, said it was on course to return its US and Mexican operations to profit.

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August 3, 2016 |
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