Pre-tax profit dived 45% at $3.61 billion over the same period, missing forecasts of $3.9 billion according to Bloomberg News.
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The firm announced a share buyback of up to $2.5 billion for the second half of 2016, funded by the selloff of its Brazil business, while it also assured that annual dividend payouts would be protected “for the foreseeable future”.
It and other banks have been building capital over the last decade to meet tougher capital rules, but even before the financial crisis HSBC did not buy back shares – it preferred to spend surplus cash on acquisitions.
HSBC’s half-year performance was described as “reasonable” by its chief executive Stuart Gulliver, despite profits plummeting over 28% compared to the first half of 2015.
For HSBC, clouds are also gathering over the potential impact of Britain’s referendum vote to leave the European Union, as well as spillover in Hong Kong from slower growth in China.
“‘Progressive’ was interpreted by everyone as meaning it is going to go up every quarter notwithstanding what is happening in the world, so what we are saying is we are committed to sustain the dividend at the current level”, he told Reuters.
“There is growing competition for the shrinking numbers of high quality borrowers” in Hong Kong, said Moody’s Investors Service’s vice president Sonny Hsu, before the bank reported its results. Return on equity at end-June was 7.4 percent. Given the strength of HSBC’s balance sheet, he said the bank had been able to retire some of the equity that it no longer required to support its recently sold Brazilian business. The ratio was impacted by lower adjusted revenue, whereas the underlying costs remained flat reflecting solid cost discipline.
HSBC is the latest to report a drop in profits, with its revenues falling faster than it could cut costs, which combined with an increase in bad loans.
Chairman Douglas Flint said: “It is evident that we are entering a period of heightened uncertainty where economics risks being overshadowed by political and geo-political events”. Bank executives have been struggling to boost profitability in the face of record-low interest rates, misconduct fines and rising regulatory costs.
Last month, Federal Bureau of Investigation agents arrested a 50-year old HSBC executive, Mark Johnson, at JFK airport and charged him with ripping off a client in an alleged $3.5 billion currency front-running scam.
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“We don’t yet know what the size of that would be, but you should assume it would be somewhere in the same range as the one we’re doing now to make it worthwhile”, Gulliver said.
