HSBC lifts outlook, launches $2 bln buyback as rising rates boost income

HONG KONG, Aug 1 (Reuters) – HSBC Holdings (HSBA.L) raised its key profitability target and announced a fresh $2 billion share buyback on Tuesday, as rising central bank interest rates worldwide helped it more than double income for the first half of the year.

HSBC (0005.HK) raised its near-term return on tangible equity goal to at least mid-teens for 2023 and 2024, from a previous target of at least 12% from 2023 onwards. It reported return on tangible equity of 9.9% for 2022.

Like its U.S. and European rivals, HSBC’s results showed a comparatively modest performance at its investment bank, where income rose 16%, outshone by near-40% gains in the commercial banking and wealth divisions.

That reflected an environment where rising interest rates around the world are boosting lending income, while a global deal drought and volatile markets suppress revenues from investment banking and trading.

The lender lifted its forecast for net interest income this year to be above $35 billion instead of $34 billion, although some analysts had looked for an upgrade nearer to $36 billion.

Europe’s largest bank with a market value of $162 billion posted a pretax profit of $21.7 billion for the first six months this year, versus $9.2 billion a year earlier and better than analysts’ average forecast of $20.9 billion.

The London-headquartered bank said it would pay an interim dividend of 10 cents per share.

HSBC’s shares in Hong Kong jumped as high as HK$66.70 ($8.55), their highest since May 2019, before settling to be up 1.2% by 0625 GMT.

Its shares in London rose 2% in early trading, against a flat FTSE 100 benchmark index (.FTSE)

WARNS OF PAIN FOR CUSTOMERS

Despite the surge in profit, HSBC warned of pain to come for many customers given an uncertain economic outlook, particularly in Britain where a combination of the highest inflation rate among the G7 group of countries and steadily rising interest rates are squeezing households.

“With more mortgage customers due to roll off fixed-term deals in the next six months, and further rate rises expected, tougher times are ahead,” CEO Noel Quinn said in the bank’s earnings statement

British house prices fell by 3.8% in annual terms in July, the largest drop since July 2009, mortgage lender Nationwide said on Tuesday.

The bank said its higher credit loss of $1.3 billion in the first six months, versus $1.1 billion a year earlier, resulted partly from exposure to China commercial real estate sector and UK commercial banking.

HSBC, which gets around two-thirds of its revenue from Asia, is considering exits from a dozen of countries as it shrinks its global footprint in a bid to boost profits, Reuters reported in May.

The bank on Tuesday said it had reclassified its business in Oman as for sale, after it last year merged its unit there with rival Sohar International Bank.

The lender has also sold its Canadian, French retail and Greek businesses, announced an exit from Russia, and wound down personal banking in New Zealand.

Not all asset sales are progressing smoothly, however, as CEO Quinn acknowledged that the sale of its Russia business scheduled for completion in the first half of this year had yet to happen.

“We are still awaiting final regulatory approval on that and it’s something we don’t have total control over,” he said.

The bank just scored a first-of-its-kind fund distribution licence as a foreign firm in China last Friday, as it continues to bet and expand in the market despite China’s flagging economy.

Quinn said the bank is “staying on course” for its long-term investment in China’s wealth market, with the strategy looking beyond the traditional high-net-worth to also cover the emerging affluent locally.

($1 = 7.7969 Hong Kong dollars)

Reporting by Selena Li and Lawrence White; Editing by Himani Sarkar

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