HSBC tops Q3 expectations with strong cash generation

HSBC Holdings PLC reported robust cash generation and revenue growth in its third-quarter earnings on Tuesday, outperforming market expectations.

HSBC tops Q3 expectations with strong cash generation

The Asia-focused bank reported a 9.9% increase in pretax profit, rising to $8.48 billion from $7.71 billion the previous year, exceeding the consensus forecast of $7.60 billion. Revenue grew 5.2% to $17.00 billion, up from $16.16 billion. Profit growth was primarily driven by strong performance in Wealth & Personal Banking, as well as gains in foreign exchange, equities, and global debt markets within its Global Banking & Markets segment. CEO Georges Elhedery commented, “We delivered another strong quarter, showing that our strategy is working. Revenue growth was significant, with solid results in Wealth and Wholesale Transaction Banking.” Buoyed by "strong organic capital generation," Elhedery announced plans for a new $3 billion share buyback, following the completion of a similarly sized buyback last week. The new buyback is expected to conclude before HSBC announces its 2024 annual results on February 19. HSBC also maintained its third-quarter dividend at $0.10 per share. The positive results led HSBC shares to surge 4.0% to 720.05 pence in London, while the FTSE 100 index rose 0.4%. In Hong Kong, HSBC shares closed 3.7% higher at HKD71.60.

NII fell by double digits

However, net interest income (NII) fell 17% to $7.64 billion, down from $9.25 billion a year ago, impacted by business disposals, increased interest expenses, and a loss from the early redemption of legacy securities. Net interest margin declined to 1.46% from 1.70% the prior year and 1.62% in Q2. HSBC reaffirmed its guidance from Q2, continuing to target a mid-teens return on average tangible equity for 2024 and 2025. The bank’s NII guidance of around $43 billion for 2024 remains unchanged, alongside a targeted cost growth of approximately 5% for the year. The lender aims to manage its CET1 capital ratio within a medium-term range of 14% to 14.5%. As of September 30, the CET1 ratio stood at 15.2%, up from 14.8% at the end of 2023. HSBC also expects to complete the sale of its Argentina business in Q4.