HSBC shares rise as banking giant launches buy-back

HSBC has announced a $2.5bn (€2.23bn) share buy-back and pared ambitions to grow dividend payouts and returns. The pragmatic steps are to soothe investors, amid slowing growth in its home markets of Britain and Hong Kong.

The lender’s London-listed shares were trading 4.5% higher at one stage after the buy-back took the sting out of a 29% in January-June pretax profits, which matched analysts’ expectations.

The shares have dropped 19% this year. As Britain’s vote to leave the EU clouds economic prospects and Hong Kong absorbs slower growth in China, HSBC, Europe’s biggest bank, has opted to “remove a timetable” for reaching its targeted return on equity (RoE) in excess of 10% by the end of next year.

“Abandoning the timetable for reaching a 10% RoE is not pessimistic as much as realistic now that interest rates in the US aren’t going up and ‘lower-for-longer’ is brutal for them,” Richard Buxton, CEO of Old Mutual Global Investors, one of HSBC’s 30 largest investors, told Reuters.

The share buy-back follows HSBC’s disposal of its Brazil unit last month in a $5.2bn deal. The bank could announce further buy-backs up to the value of the entire Brazil disposal in the future, group chief executive Stuart Gulliver said, depending on the global economic outlook next year and beyond.

He said HSBC’s core equity ratio would move to 12.6% from 12.1% at the end of June, following the buy-back, in line with the bank’s target range of 12% to 13%.

HSBC’s reserves could be boosted yet further as the bank repatriates capital “trapped” in the US following the sale of assets from its disastrous 2003 purchase of consumer lender Household.

Europe’s banking sector, rattled by deteriorating profits caused by record low interest rates, is braced for fresh economic turmoil as Britain ponders its future relationship with the EU.

Mr Gulliver said the bank had seen reduced applications for funding from small businesses in Britain following the June 23 referendum, but that the impact of Brexit had otherwise been “muted” so far.