HSBC boss is leaving on a high note – but his successor faces tougher times | Business News

Timing is everything for a chief executive – and Noel Quinn, the outgoing CEO of HSBC, appears to have got it right.

The Brummie, who steps down in September after five years in charge, today revealed a set of public-pleasing results before bowing out.

Analysts, however, fear this may be as good as it gets – for now – for Europe’s biggest bank.

HSBC Holdings reported pretax profit of $21.6 billion in the first six months of the year. This value fell 0.4% compared to the same period last year, but above the expected US$20.5 billion.

But what really excited investors – and sent shares in the FTSE-100’s third-largest company up almost 4% – was news of a $3 billion share buyback. This is in addition to a $5 billion buyback announced earlier this year.

It means that, during Quinn’s time in charge, HSBC will have repurchased $18 billion in shares and distributed $36 billion in dividends.

The bank also announced that former KPMG partner Jon Bingham will become its interim chief financial officer after current incumbent Georges Elhedery takes over from Quinn.

Bingham will be HSBC’s fourth CFO in six years.

As always with HSBC, which makes most of its profits in Hong Kong and China, there are a lot of moving parts.

The net interest margin – the difference between what a bank pays depositors and charges borrowers – stood at 1.62% in the three months to the end of June – down from 1.63% in the first three months of this year and below from 1.72% during the comparable three months in 2023.

This reflects, as other banks have observed, the growing tendency of savers to look for the most competitive rates.

Diversification paying dividends

HSBC, however, only obtains part of its revenue from financial margin and benefited from this diversification during the period.

Revenue from the bank’s wealth division, for example, rose 12% to $4.3 billion, thanks to a big increase in fee income, while bank revenue from wholesale transactions rose 4% to $1.1 billion. billion dollars.

Quinn told CNBC: “I think the performance that stands out is our ability to continue to grow revenues from alternative sources other than interest income.”

HSBC’s return on tangible equity (RoTE – a measure of a company’s ability to generate profits) was 17.0% in the half year, excluding extraordinary items, down from 18.5% in the same period in 2023.

The bank also said for the first time that it expects to achieve a RoTE in the mid-teens next year due to what Quinn said was management’s confidence in the “strong performance of the business.”

Chinese exhibition

A highlight in the numbers was how well HSBC’s business in the UK – which last year snapped up the UK arm of failed lender Silicon Valley Bank (SVB) – is in good shape, in part because the Bank of England has kept interest rates higher for longer than expected.

Quinn added: “If we look at the UK, we saw pre-tax profit increase by around 11%, if we exclude the gain on the SVB acquisition – that’s a strong performance in the UK economy… we’re seeing a resilient economy.” performance of our business.

“We have seen growth in our UK mortgage book.”

One of the main causes of the relief was the fact that, despite its exposure to the continent ChinaHSBC does not appear to have been hit by problems in the country’s commercial real estate sector.

Impairment charges, reflecting loans that the bank does not expect to be repaid in full, amounted to just $300 million in the three months to the end of June – a 67% drop from the same period last year.

Another interesting detail – which may catch Rachel Reeves’ attention, the new chancelloras it prepares to abolish “non-domestic” status in the UK at a time when countries like Italy are trying hard to attract the world’s rich – worried about the extent to which people are criss-crossing the globe.

Quinn noted: “Increased global mobility among retail customers is also driving demand for innovative cross-border banking solutions. This helped us grow international customers in Wealth and Personal Banking by 11%, bringing the total to seven million from clients.

“Revenue from these customers also grew 6% in the first half of the year. We believe there is still significant untapped potential among international wholesale and retail customers.”

Have you reached the peak?

So why is there a feeling that Quinn, who was interim chief executive for eight months before get the job permanentlyDid you time your exit well?

In part, it is because interest rate in many of HSBC’s key markets around the world are expected to start falling in the coming months, hurting the bank’s net interest income.

Benjamin Toms, an analyst at brokerage RBC Capital Markets, told clients today: “Following the strong performance in 2023, we believe the bank’s earnings momentum has come to an end.”

However, despite comments made today by Elhedery that “the big challenges are behind us” in Hong Kong and China, there is still unease about the prospects for both.

Edward Firth, an analyst at investment bank Keefe, Bruyette & Woods, told clients today that HSBC’s cash returns did not appear sustainable in the long term: “Considerable uncertainty remains over the outlook for its key market of Hong Kong .”

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When Quinn says goodbye, after 37 years at HSBC, it would be reluctant not to recognize the changes he has brought about in this super bank that is an oil bank.

Driven, no doubt, by HSBC’s strong-willed chairman, Sir Mark Tucker, he sought to increase the bank’s exposure to China as it navigated it through the pandemic.

A long campaign by HSBC’s largest shareholder, Chinese insurer Ping An, for bank will break up It was a huge distraction for the administration.

And he also had to undo the flag of previous management regimes, offloading unwanted business in France, Argentina, Canada and the United States.

This is not a bad platform to hand over to Mr. Elhedery.