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HSBC's strong core capital ratio boosts dividend outlook
[HONG KONG] HSBC Holdings on Monday posted a sharp jump in its core capital ratio to 13.9 per cent at the end of the third quarter, even as reported pretax profit dropped sharply, bolstering the outlook for near-term dividend payments.
The surge in capital ratio boosted the Hong Kong stock of Europe's biggest bank, and eased analyst concerns about its ability to build capital buffers in order to maintain its dividend payouts.
The bank posted an 86 per cent fall in reported pretax profit to US$843 million for the third quarter ended on Sept 30, as it booked a US$1.7 billion loss on the sale of its Brazilian unit and was also hit by adverse foreign currency movements.
HSBC earlier this year sold its Brazil unit in a US$5.2 billion deal.
The reported pretax profit for the third quarter was much lower than estimates of US$2.45 billion, based on the average of analysts' forecasts compiled by the bank.
Its adjusted pretax profit, excluding the one-time charges, however, rose 7 per cent during the quarter to US$5.6 billion, helped by increased revenue from its global banking and markets business, which houses its investment bank, HSBC said.
HSBC is the last major Britain-based lender to report third-quarter earnings, after Lloyds, Barclays and RBS all showed signs of coping better than expected in the aftermath of Britain's vote to leave the EU.
The bank's core capital ratio, a key measure of financial strength, was boosted by a change in the "regulatory treatment"of its investment in China's Bank of Communications, HSBC Chief Executive Stuart Gulliver said in a statement.
The ratio jumped to 13.9 per cent from 12.1 per cent at end-June and 11.9 per cent at the close of last year.
"This is another action forming part of our ongoing capital management of the group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buy-backs, as appropriate," he said.
"It also provides us with a significant capacity to manage the continuing uncertain regulatory environment."
HSBC's Hong Kong-listed shares extended gains to trade up about 2.5 per cent after the results by 0514 GMT on Monday, compared with the broader Hong Kong stock market's 0.6 per cent gain.
Bernstein analysts wrote in a report after the earnings that the higher capital ratio should be enough to allow the bank to maintain the dividend next year out of capital even as earnings decline.
"For yield investors, who have been the source of support for valuation of this stock, this keeps the stock in the safety zone into the next 6-9 months," said the brokerage, which rates the stock as underperforming due to its rich valuations.
HSBC said in its earnings statement its US$2.5 billion share buyback programme announced in August this year was now 59 per cent complete and it expected to finish by the end of this year or early 2017.
The bank posted a further US$57 billion worth of risk-weighted assets (RWA) savings in the third quarter, US$40 billion of which came from the sale of its Brazil business, and is now more than 80 per cent of the way to achieve its RWA reduction target.