Lender HSBC (HSBC) on Wednesday attempted to soften the blow of a sharp fall in earnings with a $2.5 billion share buyback, paid for with the proceeds of the sale of its Brazilian unit, as it nudged its dividend up.
HSBC is Europe's largest bank by market value though does most of its business in Asia. It said first-half pretax profit fell 29% to $9.7 billion, while second-quarter profit dropped 45% to $3.6 billion. HSBC put the decline down to "weaker market-facing activity," including at its investment banking unit, where profit fell 13%.
CEO Stuart Gulliver declared the bank had "performed reasonably well" and that it is "highly resilient" to difficult economic conditions.
But he added: "Following the outcome of the referendum on the U.K.'s membership of the European Union, there has been a period of volatility and uncertainty which is likely to continue for some time. We are actively monitoring our portfolio to quickly identify any areas of stress, however it is still too early to tell which parts may be impacted and to what extent."
The bank plans to complete the share buyback by the end of the year. It also raised its dividend to 31 cents from 30 cents a year ago, despite the profit decline. It pledged to "sustain the dividend through the long-term earnings capacity of the businesses," easing worries it won't be able to afford the payout in future.
And on a conference call Gulliver said HSBC may hand shareholders a second one-off payout with cash from its U.S. unit.
He said, "It might be possible next year, when the dividend is paid up from the U.S. operation to the holding company, that we may be able to consider a further share buy-back." He added the payout would require regulatory clearance and depend on "the circumstances at the time."
The $5.2 billion sale of HSBC's Brazilian unit to Banco Bradesco was part of Gulliver's plan for the bank to cut $290 billion of risk-weighted assets by 2017, partly through the sale of international assets as it strengthens its focus on Asia. HSBC said it had cut $48 billion of assets in the first half, taking the total cut to $172 billion.
HSBC said the Brazilian sale, which closed on July 1, has left it with a common equity Tier One capital ratio of 12.8%, up from 12.1% as of June 30.
In the first half HSBC made a return on equity of 7.4%. But on Wednesday it pushed its target for a 10%-plus return out into the future.
"While the target remains intact and appropriate, the current guidance which points to the end of next year is no longer considered achievable. In addition, the board is planning in this environment on the basis of sustaining the annual dividend in respect of the year at its current level for the foreseeable future," said chairman Douglas Flint in the statement.
Analysts at UBS said the second-quarter figures showed revenue, at $13.5 billion, was 3% higher than forecast, while adjusted net profit of $5.36 billion beat expectations by 9%.
Asia accounted for 67% of first-half adjusted pretax profit, up from 62% a year earlier. Asian adjusted pretax profit fell 8% to $7.2 billion, while European profit tumbled 28% to $1.9 billion. Profit in North America, a business HSBC continues to restructure in the wake of its disastrous purchase of Household International n 2003, fell 24% to $684 million. HSBC in June agreed to pay $1.6 billion to settle a 14-year-old class action lawsuit related to Household.
HSBC's shares in London were up 4.2% at 503.10 pence by early afternoon. The stock has held up far better than peers including Barclays (BCS) and Royal Bank of Scotland (RBS) in recent months because of its Asian focus.