HSBC in $3 billion share buyback as CEO Noel Quinn bids farewell

After forecast-beating profits, Europe's largest bank announces another share buyback on the back of growth in its wealth management business

HSBC has launched a further share buyback scheme as Noel Quinn bows out as chief executive. AP

HSBC is to buy back a further $3 billion of its shares, in the global bank's latest effort to put some support under its share price, as it posts interim profits that were largely flat but beat analysts' expectations.

The share buyback programme comes on the back of a similar $5 billion proposal announced earlier in the year.

The interim results were also the final set with retiring chief executive Noel Quinn at the helm, as he'll be replaced by Lebanese-born Georges Elhedery in September.

“After delivering record profits in 2023, we had another strong profit performance in the first half of 2024, which is further evidence that our strategy is working,” Mr Quinn said, who has worked for HSBC for 37 years.

“I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world.”

The change of leadership at the top of HSBC comes as the bank pivots more towards its Asian roots. It has already sold off its French and Canadian operations and redeployed capital, particularly to South-East Asia and China.

Much of HSBC's record profits last year were derived from the rising interest rates set by the major central banks, as monetary authorities sought to quell rapidly rising inflation. However, as those central banks now seem to be teetering on the brink of cutting rates, HSBC and other global banks are focusing on revenue generation outside of traditional lending.

HSBC's net interest income fell by $1.4 billion in the first half of this year to $16.9 billion, while its net interest margin, a key measure of how much the bank makes from lending, dropped to 1.62 per cent from 1.7 per cent at this time last year.

In Mr Quinn's five-year term as HSBC's chief executive, the bank paid $36 billion in dividends and $18 billion in share buy-backs to its shareholders.

Europe's largest bank said growth in wealth management and a narrowing loss in Chinese real estate had helped it keep its head above water, as it posted a pre-tax profit of $21.6 billion for the first half of the year which, while a fall of 0.4 per cent compared to the same period last year, was better than the $20.5 billion average forecast.

HSBC's wealth management business had revenue of $4.3 billion for the first half, a 12 per cent rise on the same period last year, driven by solid performances in private banking, asset management and life insurance.

Connecting Asia and the Middle East

As most major central banks start to prepare to reduce interest rates, HSBC is moving away from a business model that is “less of a slavish reliance on interest rate movements and levels, with an increasing focus on the growth in affluent wealth, especially in Asia,” said Richard Hunter, head of markets at Interactive Investor.

“Apart from the longer-term potential for the key Chinese market, the group previously identified areas such as India and Vietnam as being some of the fastest growing economies at present, while the building economic connections between Asia and the Middle East, notwithstanding any geopolitical conflicts, are also emerging opportunities for HSBC with its sprawling footprint,” he added.

Matt Britzman, senior equity analyst at Hargreaves Lansdown agreed that the strategy switch to greater focus on wealth management is “bearing fruit and should allow HSBC to take advantage of the burgeoning middle class in regions like China”.

“The outlook on loan losses is decent too, with management signalling the worst of the Chinese commercial real estate drama now in the rear-view mirror,” he said.

HSBC shares were 4 per cent higher during midmorning trade on Wednesday in London.

Despite rising about 7 per cent so far this year, the shares have stumbled behind their rivals in the banking sector. But analysts now see them as a better buy going forward.

"Having lagged the sector year to date, we think the shares look good value and are due a period of better performance," said Gary Greenwood, an investment analyst at Shore Capital.