HSBC, Europe’s largest bank, anticipates a brighter future for China’s commercial real estate market despite a $500 million charge from the sector impacting its third-quarter profits.
Although the bank reported profits more than doubling in July-September due to higher interest rates and initiated a $3 billion share buyback, investors were cautious due to the China impairment and increased cost forecasts.
HSBC’s CEO, Noel Quinn, expressed optimism about the situation, stating, “I do think the major correction (in China’s property market) is over, and it’s now a case of a progressive work over an extended period of time.”
The concerns surrounding China’s heavily indebted property sector have been a source of worry for foreign banks involved in lending to Chinese developers, especially after Standard Chartered reported a substantial profit drop attributed to real estate and banking issues.
All eyes are currently on Evergrande Group, a beleaguered property giant with over $300 billion in liabilities, following its default on offshore debt in late 2021.
Hong Kong’s High Court is set to make a decision regarding the liquidation of the company after the upcoming December 4th hearing.
HSBC’s finance chief, Georges Elhedery, acknowledged that the sector might face a couple of quarters of difficulty as it adjusts, but he remains positive about the long-term outlook.
Regarding HSBC’s exposure to China, equity analyst Matt Britzman from Hargreaves Lansdown commented, “There’s still a cloud of uncertainty hovering over the market, but investors will be happy to see no nasty surprises.”
HSBC’s overall results reveal the challenges it faces in delivering consistent returns amid high inflation and borrower pressures, despite its generous dividends and buybacks.
The bank expects its costs to rise by up to 5% this year, exceeding its previous target of a 3% increase, as it considers larger bonuses for bankers in the fourth quarter.
In the July-September quarter, HSBC reported a pretax profit of $7.7 billion, compared to $3.2 billion the previous year, but this result fell short of the $8.1 billion average estimate of brokers.
Jefferies analyst Joe Dickerson highlighted that costs might be a point of contention, though he noted that the $1 billion share buyback was larger than expected.
HSBC plans to complete the share buyback by February, bringing the total buybacks announced this year to $7 billion.
Additionally, the bank announced a third interim dividend of 10 cents per share, making the total annual payout so far 30 cents per share.
HSBC shares in London remained relatively stable, showing a modest performance compared to the broader FTSE 100 index’s 0.7% gain.
The bank’s Global Banking and Markets division, which includes its investment bank, reported a 2% increase in third-quarter revenues, outperforming Barclays, which experienced a 6% drop.
This growth was attributed to HSBC’s substantial payments business benefiting from higher interest rates.
Furthermore, HSBC’s wealth business, a key area for growth, attracted $34 billion in net new invested assets in the quarter.
Revenues in this segment have grown by 12% this year, driven by higher lending margins resulting from rate hikes.