HSBC Disclosed Share Buyback as H1 Profit Declines

HSBC announced on Wednesday that its core first-half profit plunged 29 percent, as revenue at the largest European bank was hurt by slowing economic growth in its major markets of Britain and Hong Kong.

Disclosing a buyback plan of up to $2.5 billion shares in the second half, the bank said in a statement that pretax profit within the period ended June dipped to $9.7 billion, down from $13.6 billion in the previous year. That figure was lower than the average estimate of $10 billion.

According to the lender, its earnings decline weighed on Europe’s banking segment, shaken by crumbling profit and yields amid record low interest rates, as well as greater regulatory costs.

The potential impact of Britain’s decision to leave the European Union, along with the spillover in Hong Kong from sluggish growth in China also adds up to concerns for HSBC. Together, both markets have contributed half the bank’s revenue in the previous year.

“Following the outcome of the referendum… there has been a period of volatility and uncertainty which is likely to continue for some time,” HSBC Group Chief Executive Stuart Gulliver explained.

“We are actively monitoring our portfolio to quickly identify any areas of stress, however it is still too early to tell which parts may be impacted and to what extent,” Gulliver added.

HSBC introduced its share buyback after the successful disposal of its Brazil unit in the past month. The bank said its core capital ratio, jumped 12.1 percent, up from 11.9 percent at the end of December. The sale of the Brazilian segment is projected to supply an additional 0.7 of a percentage point in the third quarter.

“The buyback signals HSBC’s strong capital position and should reassure investors of its ability to maintain the current 51-cent dividend,” an analyst stated.

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