HSBC rides out China property storm

HSBC shrugged off concerns about pandemic-related bad loans and property problems in China. This is with a surprise 74% quarterly profit jump and a $2 billion share buyback. The British bank’s profit growth was mainly driven by the release of cash reserves set aside in anticipation of pandemic-induced defaults, said HSBC’s finance chief Ewen Stevenson. He added that they should also look at the buyback. And that is as a measure of the confidence that they have at the moment that are not unduly concerned about their exposures in China.

The Asia-focused bank said it had $19.6 billion in lending to China’s property sector. And this is where China Evergrande Group is grappling with a $300 billion debt pile. HSBC CEO Noel Quinn, who was confirmed in the role in 2020. Global executives were moved there and ploughed billions into lucrative wealth management. The bank could spend up to $1.5 billion more on acquisitions. This is after buying insurer AXA’s Singapore assets for $575 million. Quinn stated that while they retain a cautious outlook on the external risk environment, they believe that the lows of recent quarters are behind them.

HSBC posted pretax profit of $5.4 billion. Analysts at stockbrokers Goodbody said HSBC’s revenue guidance and the reversal of expected credit losses should drive earnings upgrades while the capital beat and the $2bn buyback will be pleasing to investors. HSBC’s London-listed shares rose 1% to their highest in four months. HSBC stated that its cost projections for 2022 had risen to $32 billion. This is due to global inflation pressures.

Major companies worldwide have warned of the impact of rising costs driven by spiralling energy prices and supply chain disruption. Stevenson stated that a little bit of inflation is good for them as it should drive policy rates higher. They have a cost base of $32 billion of which $19 billion is compensation. HSBC released $700 million in cash. Another headache for HSBC is investment banking, where rivals such as Citigroup are riding an M&A boom to record-beating profits. HSBC’s investment bank saw income fall this year. HSBC’s results will set expectations high for Standard Chartered.