HSBC reins in costs to post 28 per cent jump in Q3 profit, beating forecasts

[HONG KONG] HSBC Holdings Plc's renewed push to rein in costs and boost its share of business in the mainstay Asian region helped the lender post a better-than-expected 28 per cent rise in third-quarter profit, sending its shares sharply higher on Monday.

Europe's biggest bank by assets has in recent years reaped the benefits of a wider restructuring after the global financial crisis, but rising costs have been a concern as CEO John Flint, who started in the job in February, steps up investments.

Stubbornly high costs have in recent quarters weighed on HSBC's profits, with analysts saying its share price growth will be capped until it can show revenues rising above costs, in a trend known as 'positive jaws' in city parlance.

In the September quarter, the bank's reported pretax profit was US$5.9 billion, up from US$4.6 billion in the same period a year earlier, HSBC said. The profit was higher than the US$5.6 billion average of analysts' estimates compiled by the bank.

HSBC said its expenses in the third quarter fell 2.4 per cent from the preceding three months, reversing the trend of the last couple of quarters. Quarterly reported revenue grew 6.3 per cent from the year-ago period to US$13.8 billion.

"We are doing what we said we would - delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs," Flint said in the company earnings statement filed to the Hong Kong exchange.

He has outlined plans to spend as much as US$17 billion in three years on technology and in China.

The lender is hiring more people to boost growth in some of its business units including investment banking and private banking - the areas where it has lagged its American and some of its European rivals.

HSBC this month hired former JPMorgan banker Greg Guyett as co-head of global banking, which includes investment banking, to fill a gap left by the departure of former Goldman Sachs banker Matthew Westerman last year.

It also poached Goldman Sachs veteran banker Peter Enns as its global head of financial institutions group in its investment bank, after losing a number of high-profile dealmakers this year.

Hong Kong shares of HSBC extended their morning gains to be up as much as 5.6 percent in the afternoon after the results, while the broader market was up 0.3 per cent.

HSBC's common equity tier 1 ratio - a measure of financial strength - was 14.3 per cent at end-September, meeting analyst expectations. It was lower than the 14.5 per cent at the end of 2018 but higher than the 14.2 per cent at end-June.

Reported pretax profit for the bank's Asia operations, which accounted for 75 per cent of the bank's overall profits in the September quarter, rose 10.7 per cent during the third quarter to US$4.5 billion.

HSBC's regional pivot is centred around China's Pearl River Delta region with billions in investment commitments and plans to bolster its retail and wealth management business in the world's second-largest economy.

The southern Pearl River Delta region - home to 11 industrial cities that are set to fuse into one megalopolis - already has an economy larger than Indonesia's and has shifted from a manufacturing base to a tech powerhouse.

HSBC is set to be the first company to issue Chinese Depositary Receipts, through a link between the London and Shanghai stock exchanges which will begin by year end, people familiar with the matter said earlier this month.

REUTERS