HSBC springs surprise with strong profit growth

HSBC Holdings posted a higher-than-expected 28 per cent rise in quarterly profit on Monday, showing progress in its battle to control costs and shaking off fears that rising global political tensions could hurt its business.

Europe’s biggest bank by assets has reaped the benefits of a thorough restructuring after the global financial crisis, but investors have lately worried about rising costs as new CEO John Flint steps up investments.

The profit growth cheered investors in the London-headquartered lender, and boosted the wider European bank sector, starved of good news in 2018 amid fears about bad loans, Brexit, and weak revenues.

HSBC’s shares rose as much as 5 per cent in London on Monday morning. That left Britain’s FTSE 350 banks index up 2.8 per cent, and on track for its best daily performance since January.

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HSBC veteran Mr Flint, who began in the role in February, has outlined plans to spend as much as $17 billion (€14.9bn) in three years on technology and in China, including hiring more people to boost growth in investment banking and private banking where it has lagged rivals.

HSBC makes more than three-quarters of its profits in Asia, especially from its highly profitable Hong Kong retail banking operation.

‘Positive jaws’

Analysts have said HSBC’s share price will be capped until it can show revenues rising above costs, in a trend known as “positive jaws” in industry parlance.

While HSBC reported the metric in negative territory for the third quarter, Mr Flint said the bank was on track for it to swing to positive by the end of the year.

“We’re absolutely in line with our plans, so we still expect to get positive jaws for the full year,” he told Reuters in a phone interview. “The real driver is that we have got control over cost base and we got some revenue momentum.”

The cost reduction came as HSBC nears the end of a decade of expensive restructuring following the 2008 crisis.

In the three months ended September 30th, the bank reported pre-tax profit of $5.9 billion, up from $4.6 billion in the same period a year earlier.

Expenses

HSBC said its expenses in the third quarter fell 2.4 per cent from the preceding three months, reversing the trend of the last couple of quarters. Quarterly reported revenue grew 6.3 per cent from the year-ago period to $13.8 billion.

The bank’s number of full-time employees as of the end of September showed an increase of 5,044 from December to 233,731, reversing the trend of shrinking headcount in recent years as the bank slashed jobs following the 2008 crisis. – Reuters