source from：WSJ
MARKETS
HSBC Profit Falls 40% as Bank Plans 2.5 Billion dollars Share Buyback
CEO Stuart Gulliver says it is too early to tell how Brexit will affect operations

By MARGOT PATRICK and  JULIE STEINBERG
Updated Aug. 3, 2016 5:36 a.m. ET
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LONDON— HSBC Holdings PLC on Wednesday announced a surprise 2.5 billion dollars share buyback as the global slowdown makes new lending and investments less appealing.

The bank’s shares rose 3.5% in London on the plan to give shareholders back some of the cash from the sale of HSBC’s Brazil unit last month. But questions remained over the bank’s growth and ability to keep paying big dividends after second-quarter net profit plunged 40% to 2.61 billion dollars.

HSBC said Wednesday that it is no longer “achievable” to reach its target return on equity, a key profitability measure, of more than 10% by the end of 2017. In an interview, Chief Executive Stuart Gulliver said that the target is still in place but that persistently low interest rates, a rising U.K. tax rate for banks and other economic and geopolitical uncertainties mean there is no “line of sight” on when it can be achieved.

If the outlook doesn’t improve, HSBC might have to look more deeply beyond its current cost-cutting plans, Mr. Gulliver said.

Once a sprawling bank across 87 countries with little central oversight, HSBC since 2011 has cut or sold dozens of businesses to improve profit and cope with tougher regulations. Last year it said it would pivot further to Asia, already the main source of its profit.


But plans to expand in China, and particularly its Pearl River Delta region, will take more time than originally envisioned, bank officials said Wednesday, because of weaker economic conditions. Lending in Hong Kong and the U.K. has also been sluggish this year, they said.

Much of the focus Wednesday was around the future of HSBC’s dividend. Mr. Gulliver said it would be maintained at its current 51-cent annual level “for the foreseeable future.” He said additional stock buybacks were possible as it exited more businesses but would be decided on a case-by-case basis and would need signoff by regulators.


Mr. Gulliver said one reason the bank had confidence in its ability to maintain dividends—which some analysts still expect will be cut at some stage—is that its U.S. business is in shape to pay its first dividend in a decade to the U.K. holding company. HSBC racked up billions of dollars in losses in the U.S. after a disastrous foray into subprime lending before the financial crisis and is still in the process of rolling off and selling loans in those portfolios.

On a call with analysts, Mr. Gulliver said HSBC still had a lot of work to do to improve profit in its continuing corporate lending and retail businesses in the U.S. but dismissed any talk it would exit the country.

“We will always have a U.S. business,” he said.

Shares outperform other FTSE100-listed companies following the release of results on the back of its 2.5 billion dollars share buy-back program following the sale of its Brazilian business. Hargreaves Lansdown senior analyst Laith Khalaf says HSBC’s efforts to cut costs have been outstripped by the pace at which its revenue has fallen.

HSBC’s capital metrics are strong despite reporting weak second-quarter earnings, says ING Bank credit analyst Suvi Platerink Kosonen. The bank’s common equity tier 1 ratio increased to 12.1% from 11.9% over three months. She warns that the planned 2.5 billion dollars share buybacks could pressure HSBC’s capital position but is unlikely to shave more than 23 bps off the common equity tier 1 ratio.

Meanwhile, analysts have painted gloomy scenarios for U.K. lenders as a result of Britain’s decision to leave the European Union, suggesting lower loan growth, more bad loans and possible dividend cuts. Mr. Gulliver said Wednesday that the bank was assessing how its portfolio would be affected by the uncertainty caused by Brexit but that it was “too early to tell which parts may be impacted and to what extent.”

HSBC is based in London, and the U.K. accounts for around 30% of its global loan book. Mr. Gulliver said the bank didn’t need to make any big decisions right now around Brexit, in part because it owns a French bank that could become its main portal into Europe.