HSBC (HSBC) shares rose sharply in London Monday after Europe's biggest bank posted lower net profit but significantly improved its capital base and cost ratios.
Pre-tax profit for the nine months ending in September came in at $10.557 million, the bank said, putting the third-quarter figure at $843 million. Adjusted revenues for the three month period fell 19% to $11.285 billion, according to the bank's online report. However, pre-tax profits on an adjusted basis were measured at $5.6 billion for the quarter, according to the nine-month report, a 4.4% advance from the previous three month period.
HSBC said currency movements and the sale of its Banco Bradesco SA in Brazi, which resulted in a $1.7 billion loss, were part of the "significant items" that account for the difference between adjusted and unadjusted profits.
The bank's common tier one capital ratio, a measure of the amount of capital it has set aside to absorb future potential losses, rose to 13.9% from 12.1% in the previous quarter. HSBC said the hefty advance was linked to a change in regulatory treatment of its stake in Bank of Communications Co. (BoCom) in China.
HSBC shares rose more than 4.5% in early London trading to change hands at £621.1 each, extending the year-to-date gain past 19%. HSBC shares have also beaten the FTSE 350 banking index over the past three months, rising 14% against a 6.2% performance for the benchmark.
"Our third-quarter performance reflected the strength of our network and the deepening impact of our strategic actions. Reported profits were down, but adjusted profits were higher than last year's third quarter in all four global businesses and four out of five regions," said CEO Stuart Gulliver. "Reported profits included the impact of the disposal of our operations in Brazil, changes in the fair value of our own debt, and the costs of implementing our cost-reduction programmes."
HSBC also reported that its its adjusted "jaws" ratio, a measure of the rate of growth of income over expenses, turned positive on a nine-month basis - at +1.5% - for the first time this year. The so-called adjusted jaws ratio was measured at -0.5% in the second quarter and -2.8% in the first three months of the year. Adjusted jaws for the quarter was 5.6%, the bank said.
The bank's $2.5 billion share buyback program, announced in the second quarter, is now 59% complete, the bank said, and should finish "in late 2016 or early 2017".