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HSBC quarterly profits boosted by tighter cost control and China expansion

“We are doing what we said we would - delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs,” HSBC boss John Flint said
HSBC
Profits beat analysts' expectations

HSBC Holdings PLC (LON:HSBA) reported a 28% increase in pre-tax profit for the third quarter as the benefits of lower costs and the bank’s push into Asia paid off.  

Reported pre-tax profit rose to US$5.9bn in the three months to September 30 from US$4.6bn a year ago, beating analysts’ expectations of U$5.6bn.

Adjusted pre-tax profit, excluding exceptional items and the impact of foreign exchange, increased 16% to US$6.2bn from US$5.3bn last year. 

Reported revenue edged up 6.3% to US$13.8bn, supported by growth in retail banking and wealth management, commercial banking and global banking and markets businesses.

"Profit growth has been broad-based across HSBC’s main banking activities, and what’s positive is that’s coming from a rising top line rather than simply cost-cutting, which can only deliver results for so long," said Laith Khalaf, senior analyst at Hargreaves Lansdown

HSBC reins in costs

High costs have weighed on the lender’s profits in recent quarters as John Flint, who started as chief executive in February, ramps up investment in Asia. 

Operating expenses in the third quarter fell 2.4% to US$7.7bn from the previous three months.

READ: HSBC shares vulnerable to US-China trade war, says RBC as it downgrades the stock

“We are doing what we said we would - delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs,” Flint said.

The net interest margin rose to 1.67% at the end of September from 1.63% the same time a year ago. 

HSBC’s common equity tier 1 ratio - a measure of capital strength - was 14.3% at end-September, down from 14.5% at the end of 2018 but higher than 14.2% at the end of June.

Asia continues to lead growth

Growth was driven by the Asia business, which accounted for 75% of total profits, with reported pre-tax profit rising 10.7% to US$4.5bn.

HSBC has been expanding its share of business in the mainstay Asian region with plans to grow its retail and wealth business in China and billions of investment commitments in the nation’s Pearl River Delta region. 

The bank plans to spend US$17bn in three years on technology and in China.

HSBC has also hired more staff to bolster investment banking and private banking to help it better compete against its US and European rivals.

Earlier this month the bank hired former JPMorgan banker Greg Guyett as co-head of global banking, which includes investment banking. The bank also hired Goldman Sachs veteran banker Peter Enns as global head of financial institutions group in its investment bank.

Jefferies maintained a 'buy' rating on the shares, saying HSBC's profits were ahead of expectations and the revenue performance was strong.

Shares rose 4.3% to 631p in morning trading. 

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