HSBC rides rising rates to double its income, launches $2-bn share buyback

HSBC Holdings raised its key profitability target and announced a fresh $2 billion share buyback on Tuesday, as rising central bank interest rates worldwide helped it more than double its income for the first half of the year.

That helped the bank raise its near-term return on tangible equity goal to at least mid-teens for 2023 and 2024, up from a previous target of at least 12% for this year and a reported level of 9.9% for 2022.

The London-based lender's robust performance update came after it quashed a vote by activist shareholders including Ping An Insurance 601318.SS in May, who had pressured the bank to spin off its operations in Asia.

HSBC's shares in London rose 2.7% against a flat FTSE 100 benchmark index. The bank's shares have climbed 68% over two years, while rival Barclays has fallen 14% amid turbulence in its investment bank over the period.

HSBC's bull run shows how it is less reliant on its investment bank, where its income nonetheless rose 16% in the first half while US and European rivals have seen sharp revenue declines as dealmaking stalls.

The real driver of HSBC's results was near-40% gains in income for the commercial banking and retail and wealth management divisions, more staid areas of banking where lending margins have risen as central bank rates march higher.

The lender lifted its forecast for net interest income this year to be above $35 billion instead of $34 billion, although analysts at Jefferies said they had looked for an upgrade nearer to $36 billion.

Europe's largest bank with a market value of $162 billion posted a pretax profit of $21.7 billion for the first six months this year, versus $9.2 billion a year earlier and better than analysts' average forecast of $20.9 billion.

HSBC said it would pay an interim dividend of 10 cents per share.

WARNS OF PAIN FOR CUSTOMERS

Despite the surge in profit, HSBC warned of pain to come for many customers given the uncertain economic outlook, particularly in Britain where sticky inflation and steadily rising interest rates are squeezing households.

"With more mortgage customers due to roll off fixed-term deals in the next six months, and further rate rises expected, tougher times are ahead," CEO Noel Quinn said in the bank's earnings statement

British house prices fell by 3.8% in annual terms in July, the largest drop since July 2009, mortgage lender Nationwide said on Tuesday.

The bank said its higher credit loss of $1.3 billion in the first six months, versus $1.1 billion a year earlier, resulted partly from exposure to China's commercial real estate sector and UK commercial banking.

The bank continues to expand in China despite its flagging economy, winning a first-of-its-kind fund distribution licence as a foreign firm last Friday.

HSBC, which gets around two-thirds of its revenue from Asia, is considering exits from a dozen of countries as it shrinks its global footprint to boost profits, Reuters reported in May.

The bank on Tuesday said will sell its Oman business, after it last year merged its unit there with rival Sohar International Bank.

The lender has also sold its Canadian, French retail and Greek businesses, announced an exit from Russia, and wound down personal banking in New Zealand.

Not all asset sales are progressing smoothly, however, as CEO Quinn acknowledged that the sale of its Russia business scheduled for completion in the first half of this year had yet to happen.

"We are still awaiting final regulatory approval on that and it's something we don't have total control over," he said.