Introduction: HSBC profits jump 32%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
As he puts the finishing touches to tomorrow’s budget, John Healey may note that another bank has reported a jump in earnings.
HSBC is handing $2.7bn (£2bn) to shareholders after a 32% surge in profits, that will further assure the Treasury that the UK’s top banks can shoulder a tax hike in the budget, my colleague Kalyeena Makortoff reports.
The London headquartered bank reported this morning that profits grew nearly a third to $9.6bn in the July to September quarter – slightly below consensus estimates – helped by higher interest rates, lower loan losses and smaller legal provisions compared to last year.
It meant the bank could hand $2.7bn to shareholders. That included another $1bn share buyback, as well as an interim dividend of $0.1 per share, that the bank said would mean distributing another $1.71bn to its investors.
Net interest income – the difference between what banks charge for loans versus pay out for savers’ deposits, rose to $9.3bn from $8.8bn year on year. However, that was apparently lifted by its hedging strategy and a growth in deposits in Hong Kong, while UK deposits stayed flat.
HSBC is following Barclays, which last week reported a 12% jump in profits
The agenda
Morning: UK holds auction of Treasury Gilt 2032
1pm GMT: US house price index
2pm: US consumer confidence report
2pm: US new homes sales data
The 6% drop in HSBC’s share price this morning has made rather a dent in the FTSE 100 share index.
The ‘Footsie’ is down 108 points, or 1%, at 10,659 points.
HSBC is the largest member of the share index (it’s on track to lose that crown by the end of the day!), ahead of Shell and AstroZeneca.
At the close of play yesterday, HSBC was worth almost £234bn, ahead of Shell at £228.75bn.
Consumer goods maker Reckitt Benckiser (-6.3%) are also pulling the FTSE 100 down, after it lowered its financial guidance for the year this morning.
HSBC shares drop by over 6%
The City is not impressed with HSBC’s financial results, having expected even higher profits.
Shares in HSBC are down 6.7% in early trading, and appears to be pulling the rest of the banking sector down too.
That’s because the 32% jump in profits is slightly below analyst forecasts (although $9.6bn should hardly be sniffed at!).
Chris Beauchamp, chief market analyst at IG, says:
How cost-cutting and lower legal bills boosted HSBC's profits
One strong argument for higher bank taxes is that the financial sector has been benefitting from the increase in interest rates in recent years.
That has allowed them to swell their net interest income (NII) by raising the rates charged on borrowers by more than those paid to savers.
However, NII is only a small factor behind the jump in HSBC’s profits in the last quarter. NII rose by 6%, or $500m, to $9.3bn – which HSBC attributes to “deposit growth and the benefit of reinvestment of our structural hedge at higher yields”.
HSBC also profited from a cost-cutting drive – operating expenses fell by 12%, or $1.3bn, to $8.8bn.
It also benefitted from a $1.4bn drop in legal provisions – this was the sum it set aside last year to cover a claim related to Bernie’s Madoff’s Ponzi scheme.
HSBC was also quizzed about the impact of last week’s Google Cloud outage.
CFO Pam Kaur says:
HSBC: won't comment on press speculation on job losses
HSBC has also been asked about the impact of AI on the jobs market, after rival Barclays announced 5,000 job cuts last week.
The Financial Times reported earlier this month that HSBC is planning sweeping job cuts in its UK wealth management business, but the bank dodged the question today.
CFO Pam Kaur told reporters:
TUC: HSBC profits make it “blatantly obvious” banks can afford more tax
The TUC are also urging the Chancellor to increase taxes on banks in tomorrow’s Budget, arguing the sector could pay tens of billions of pounds more.
Rather than simply reversing Jeremy Hunt’s cut to the bank surcharge from 8% to 3%, the TUC argue that the surcharge – additional corporation tax – should be increased further.
That would provide funding to pay for a social energy tariff that brings down energy bills for those on low and middle incomes.
Hiking the surcharge to 16%, they say, would deliver £24bn over four years.
A 35% surcharge, which would be the same level as the windfall tax the Conservatives imposed on energy companies, would yield £60bn over four years.
TUC general secretary Paul Nowak says:
NEF: HSBC profits hard to swallow as households face rising costs
HSBC’s jump in profits is prompting fresh calls for new bank taxes in the budget.
As the Guardian reported earlier this month, Healey has decided to tap the financial sector for additional revenue. One way would be to reverse cuts to the bank surcharge made by former chancellor Jeremy Hunt – which would raise upwards of £2bn a year.
Abhijay Sood, economist at the New Economics Foundation, argues that Healey should go further!
HSBC 'very encouraged' by Burnham's growth agenda
HSBC CFO Pam Kaur is speaking to the media now.
On the issue of a bank tax (which John Healey could announce tomorrow), Kaur expresses support for what Andy Burnham’s government are doing, saying:
But Kaur also said HSBC would have to ‘respond to customer behaviour’:
Announcing today’s financial results, Georges Elhedery, HSBC’s group CEO, said:
Introduction: HSBC profits jump 32%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
As he puts the finishing touches to tomorrow’s budget, John Healey may note that another bank has reported a jump in earnings.
HSBC is handing $2.7bn (£2bn) to shareholders after a 32% surge in profits, that will further assure the Treasury that the UK’s top banks can shoulder a tax hike in the budget, my colleague Kalyeena Makortoff reports.
The London headquartered bank reported this morning that profits grew nearly a third to $9.6bn in the July to September quarter – slightly below consensus estimates – helped by higher interest rates, lower loan losses and smaller legal provisions compared to last year.
It meant the bank could hand $2.7bn to shareholders. That included another $1bn share buyback, as well as an interim dividend of $0.1 per share, that the bank said would mean distributing another $1.71bn to its investors.
Net interest income – the difference between what banks charge for loans versus pay out for savers’ deposits, rose to $9.3bn from $8.8bn year on year. However, that was apparently lifted by its hedging strategy and a growth in deposits in Hong Kong, while UK deposits stayed flat.
HSBC is following Barclays, which last week reported a 12% jump in profits
The agenda
Morning: UK holds auction of Treasury Gilt 2032
1pm GMT: US house price index
2pm: US consumer confidence report
2pm: US new homes sales data
