HSBC 2023 profit jumps 56%, as it unveils US$2 billion new share buy-back plan

HSBC, the biggest of Hong Kong’s three currency-issuing banks, missed annual profit estimates as the impact of a higher interest margin was offset by bad-debt provisions related to mainland China’s real estate sector amid charges associated with its hedging strategy.

Net profit rose 56 per cent to US$22.43 billion for the full year in 2023, or US$1.15 per share, from US$14.82 billion in 2022, missing the US$26.1 billion net profit expected by analysts, according to a consensus estimate compiled by Bloomberg.

Pre-tax profit jumped 78 per cent to US$30.3 billion in the year under review, compared with US$17.53 billion a year earlier. This was also worse than market estimates of US$33.72 billion.

HSBC also announced a new US$2 billion share buy-back programme and a higher dividend of US$0.61 per share for the full year versus US$0.32 per share in 2022, increasing its dividend payout ratio to 50 per cent from 44 per cent.

“Our record profit performance in 2023 enabled us to reward our shareholders with our highest full-year dividend since 2008, three share buy-backs last year totalling US$7 billion, and a further share buy-back of up to US$2 billion,” said CEO Noel Quinn said in an earnings statement to the Hong Kong stock exchange on Wednesday.

The bank said it expects to complete the buy-back by the first quarter 2024 results announcement.

“This reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment. We have a strong platform for growth with the opportunities that exist within our two home markets and across our international wholesale, market-leading transaction banking, and wealth management businesses. We are focused on capturing these growth opportunities, improving our earnings sustainability and targeting mid-teens returns in 2024.”

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Pre-tax profit among Hong Kong’s retail banks increased by 62 per cent on aggregate last year, compared with 19 per cent in 2022 when business in the city was still hobbled by anti-pandemic controls, according to data provided by the Hong Kong Monetary Authority (HKMA).

Interest rate rises from March 2022 helped widen net interest margins, while a general recovery in business activity fanned demand for banking services and wealth management products, HKMA deputy CEO Arthur Yuen Kwok-hang said last month.

Citi Research analyst Andrew Coombs gave a positive outlook for HSBC result because HSBC has hedged against interest rate changes.

In addition, the Canadian Finance Minister in December gave the approval for the bank to divest the Canadian business, which means “HSBC is now in a position to update on capital return potential,” Coombs said in a research note in January.

“Hong Kong banks face the twin challenges of a turn in the rate cycle, and slow GDP outlook in 2024,” Morgan Stanley equity analyst Nick Lord wrote in a research note in January.

“Although in the second half and the fourth quarter of 2023, they still benefit from rising rates. China commercial real estate exposures remain a focus, as will comments on Hong Kong.”