HSBC (HSBA.L) said it will look to pay a “conservative” dividend if regulators allow it, after posting better-than-expected third quarter results.
The UK-Hong Kong bank on Tuesday reported forecasting-beating revenue and profits, boosted by lower loss provisions than analysts had forecast.
“These were promising results against a backdrop of the continuing impacts of COVID-19 on the global economy,” chief executive Noel Quinn said in a statement.
Quinn said HSBC would aim to pay a “conservative dividend if circumstances allow.” Along with other European lenders, HSBC was forced to scrap its shareholder payouts earlier this year under pressure from the Bank of England. The move angered retail investors in Hong Kong. UK regulators are currently reconsidering the ban.
“The Group’s capital and liquidity ratios strengthened further in the quarter despite the challenging economic conditions,” Quinn said.
“A decision on whether to pay a dividend for the 2020 financial year will depend on economic conditions in early 2021, and be subject to regulatory consultation.”
HSBC shares jumped over 5% in Hong Kong (0005.HK) and London, topping the FTSE 100.
Income at the bank was $11.9bn (£9.1bn) in the third quarter and pre-tax profit came in at $3bn. While profit was down by 36% on a year earlier, it was still above forecasts. Analysts had forecast income of $11.7bn and a pre-tax profit of $2bn.
HSBC was boosted by loss provisions of just $785m in the quarter. Analysts had expected HSBC to set aside another $2bn to cover loans going bad due to the COVID-19 pandemic.
The bank said loss provisions across 2020 were now expected to be “at the low end of the $8bn to $13bn range” it guided earlier this year. HSBC has so far set aside $7.6bn to cover losses.
“I'm pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment,” Quinn said.
HSBC is currently undergoing what chief executive Noel Quinn has called “one of the deepest restructuring and simplification programmes in our history.”
The bank is cutting 35,000 jobs around the world as it tries to end years of underperformance. HSBC is refocusing on Asia and pulling back from less profitable operations in the US and Europe. The bank said it would provide more details on its transformation plan at its year-end results.
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“We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines towards fee-generating businesses, and further reducing our operating costs,” Quinn said.
“We also intend to increase our rate of investment in Asia, particularly in wealth, the Greater Bay Area, south Asia, trade finance and sustainable finance.”
While Asia represents a more lucrative area for the bank, doubling down on the region has proved politically problematic. HSBC’s top executive in Asia backed China’s widely condemned Hong Kong Security law earlier this year, leading US Secretary of State Mike Pompeo to publicly criticise the bank. UK lawmakers have also called on HSBC to answer questions on its activities in the region.
“The financial impact to the Group of geopolitical risks in Asia is heightened due to the strategic importance of the region, and Hong Kong in particular, in terms of profitability and prospects for growth,” HSBC warned.
The lender flagged US sanctions on 11 Chinese nationals linked to actions in Hong Kong. HSBC said the mounting sanctions could lead to secondary sanctions on banks that serve them.
“We continue to monitor the situation,” the bank said.
The bank said the outlook remained unusually uncertain due to heightened tensions between the US and China, the COVID-19 pandemic, and Brexit.
Sudeepto Mukherjee, a senior vice president at financial services consultancy Publicis Sapient, said HSBC was a “good gauge of the state of the market and trajectory of recovery,” given the bank’s global footprint and participation in government COVID support schemes.