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HSBC's first-half profits beat expectations as investment strategy pays off

“We are taking firm steps to deliver the strategy we outlined in June,” said HSBC chief executive John Flint
HSBC
HSBC says it is investing to win new customers and increase its market share

HSBC Holdings PLC (LON:HSBA) posted a 4.5% increase in pre-tax profit for the first half as the bank’s strategy to invest in growing the business started to bear fruit.  

In the six months to June 30, reported pre-tax profit rose to US$10.7bn from US$10.2bn the same period a year ago, ahead of market forecasts of US$10.38bn.

Revenue grew 4% to US$27.3bn from US$26.2bn last year. The bank’s retail banking and wealth management, and commercial banking divisions were the main drivers of growth in the first half, boosted by a positive interest rate environment.

Net interest income was up 9.6% to US$15.1bn from US$13.7bn with net fee income up 4.2% to US$6.8bn. The return on tangible equity fell to 8.7% from 8.8%

Shore Capital reiterated a 'sell' rating and target price of 625p on the stock, saying: "While profit performance was slightly ahead of expectations we view the income performance and negative jaws as disappointing.  Furthermore, we continue to believe that an improvement in returns beyond our own and consensus expectations is required to justify the current share price."

Chief executive John Flint said HSBC is taking "firm steps" to deliver the strategy outlined in June.

The strategy involves spending US$15-17bn over three years in such areas as technology and expanding in China, marking a switch in the lender’s post-financial-crisis attitude of cost-cutting and restructuring to investment and growth.

“We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns," Flint said.

READ: HSBC plans to invest between US$15bn-US$17bn in technology as it gets back into "growth mode”

Asia remains strongest performing region

Asia, which accounts for 88% of the group’s pre-tax profits, delivered a 23% increase in profits to US$9.4bn.  Pre-tax profit in Europe rose 1% to US$110mln and in the Middle East and North Africa it increased 7.8% to US$836mln while North America was up 0.4% to US$42mln and Latin America grew 3.2% to US$344mln.

The common equity tier 1 (CET1) capital ratio – a measure of financial strength stood at 14.2% at the end of the period, up from 14.5% at the end of March.

The group declared an interim dividend of US$0.31, the same as last year. 

US-China trade war fears

"HSBC now needs to start delivering against the growth agenda they set out to the markets a couple of years ago," said Steve Clayton, manager of the Hargreaves Lansdown Select UK Income Shares fund.

"The potential for growth from China and the wider SE Asian region ought to be good and HSBC has long thrived from financing global trade flows. But in a world of tit-for-tat sanctions between the global powers, it could become harder for HSBC to benefit from its deep Asian roots.”

The lender separately announced that it had appointed Jonathan Symonds, a former chairman of HSBC Bank PLC, as its deputy chairman. 

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