HONG KONG: HSBC on Monday is expected to report pre-tax profit growth of as much as 40 per cent in the second quarter and 3 per cent in the first half, as a result of an improved global economy and fewer bad debts, according to analysts. The lender, which is the world’s sixth largest bank by assets, will likely announce plans to buy back its own shares at an amount between US$1.5 billion to US$4 billion in the second half of this year, analysts said. The bank already bought back US$1 billion in the first half, in addition to US$2.5 billion in share buybacks last year. HSBC’s shares have risen 49 per cent in the past year, as of its close at HK$76.7 on Tuesday.
HSBC, the biggest lender in Hong Kong and Europe, is expected to report a 17 per cent year on year rise in unadjusted net profit growth in the second quarter to US$3.04 billion, and a 19 per cent increase in earnings per share to US$0.14, according to consensus estimates of analysts polled by Bloomberg. Adjusted profit however is expected to fall 17 per cent to US$3.34 billion. Citi believes HSBC will see its quarterly pre-tax profit up 40 per cent to US$5.06 billion, while Sun Hung Kai Financial forecasts a 38 per cent jump to US$5 billion.
For the half year, Citi believes HSBC’s unadjusted pre-tax profit will rise 3.1 per cent to US$10.02 billion while revenue will drop 12.8 per cent to US$25.7 billion. The first half year growth was dragged down as the first quarter unadjusted profit fell 19 per cent due to change of accounting treatment in fair value, Citi said. This will be the last interim result to be announced by chairman Douglas Flint, who will step down in September after seven years at the helm. He will be succeeded by former AIA chief executive Mark Tucker, who will need to find a new chief executive to succeed outgoing Stuart Gulliver. “They inherit a stronger bank after seven years of portfolio refocusing, cost efficiency improvements and capital rebuild,” Citi said.
HSBC’s 2017 total return yield, including the share buyback, is above 5 per cent which is among the highest in FTSE100 and Asian bank stocks, Citi said. “Most people believe the worst is over for HSBC. Europe and Hong Kong, where HSBC has substantial operations, have been doing well in the first half,” said Gordon Tsui, managing director of Hantec Pacific. However, he believes the current share price has fully reflected the positive forecast of the bank’s strong earnings.
“The market now has its eyes on whether the bank will continue to repurchase shares and pay a high dividend to attract institutional investors,” Tsui said. In 2015, HSBC chief executive Stuart Gulliver announced a three-year strategy to reduce the bank’s international operations, cut annual costs by US$5 billion, and shed 50,000 jobs. “Loan growth is gaining momentum,” Citi said, noting that loans were on an uptrend in the second quarter, following first quarter loan growth of 4 per cent on quarter.
Kenny Wen, wealth management strategist of Sun Hung Kai Financial, said the stock market rally in Asia including Hong Kong has boosted HSBC’s Asian wealth management, brokerage and insurance sales in the first half. “Asian business contributed 65 per cent to pre-provision of HSBC profit last year while we expect that the Asian business continued to be the main driver of HSBC’s future revenue and profit,” Wen said.
“Insurance products and management assets will increase 13 per cent and 15 per cent respectively in Asia, while launching new insurance products in the mainland,” he said. Wen believes HSBC will announce a US$1.5 billion share buyback for the second half of 2017, a view shared by many other analysts, while UBS predicts the buyback may reach US$4 billion. HSBC subsidiary Hang Seng Bank, also announcing its results on Monday, is expected to report first half profit of HK$17.33 billion (US$2.22 billion), according to the consensus of analysts polled by Bloomberg. The bank’s adjusted earning per share will likely rise by 22 per cent to HK$5.12, according to the analysts.
Hang Seng’s earnings briefing will be the first hosted by chief executive Louisa Cheang. Brett McGonegal, chairman and chief executive of Capital Link Investment Holdings, believes both HSBC and Hang Seng Bank will report solid results on Monday. “However, HSBC has a lot of unknowns currently and I don’t think this forecast will clear the air in any absolute way,” McGonegal said. “Changing leadership and Brexit will result in strategy shifts that will need time to work themselves out. Clearly they will want to deliver a strong number that can support the buyback as this has become the norm of mega cap names around the globe,” McGonegal said. Ben Kwong Man-bun, a director of KGI Asia, says rising interest rates would benefit HSBC. “HSBC is one of the world’s most rate-dependent banks owing to its large pool of deposits,” Kwong said.