HSBC pledges $2.5bn share buyback as interim profits plunge

Amid continuing turbulent economic conditions, HSBC Holdings' profits plunged in the second quarter to push interim result south of market expectations, though the bank sweetened the pill with news of a $2.5bn (£1.8bn) share buyback thanks to the sale of its Brazilian business.

In the six months to 30 June, profits before tax of $9.71bn were down 28.7% from the same period last year earlier and short of the City's expectations of around $10bn. Earnings per share were down a third to $0.32.

The sharper than forecast decline was due to second-quarter net profit dropping 40% to $2.61bn, with PBT plummeting 45% to $3.61bn.

Most of the profit decline in the global business came from lower transaction volumes as the 'uncertain times' led to customer restraint, plus a higher $2.4bn of loan impairments.

On the plus side, credit-related income remained solid and management made progress on cutting costs and reducing risk-weighted assets by $48bn.

HSBC, which has paid $0.20 in two dividends for the current year, said it remained committed to sustaining its annual ordinary dividend at current levels "for the foreseeable future".

But due to the uncertain economic and geo-political environment, together with director's expectations for an extended period of low interest rates, the timetable for reaching a target return on equity in excess of 10% by the end of next year has been removed.

Common equity tier 1 (CET1) capital strengthened to 12.1% from 11.9% six months before.

Chief executive Stuart Gulliver said the company performed "reasonably well" and was particularly pleased with progress in reducing costs and risk-weighted assets.

"Our highly diversified, universal banking business model helped to drive growth in a number of areas and we captured market share in many of the product categories that are central to our strategy. While economic conditions remain difficult, we are making progress in all of the areas within our control. In the meantime, our balanced business model, strong liquidity and strict cost management make us highly resilient."