HSBC reports smaller-than-expected fall in Q3 profits

Pre-tax profit for the three months to September 30 came in at $3.1bn, compared with a $2.07bn average of analysts' estimates compiled by the bank. Revenue fell 11% to $11.9bn driven by lower interest rates on interest income, with revenues from lending down 14.8%.

Losses from bad loans were forecast to be at the lower end of the $8bn - $13bn range set out earlier this year, HSBC said on Tuesday. Results were helped by loss provisions of just $800m in the quarter against analysts expectations of another $2bn to cover impairments.

The company has struggled to raise income as interest rates globally sit at historic lows and HSBC said it may start charging for basic banking services such as current accounts.

"We will have to look at charging for basic banking services in some markets, because a large number of our customers in this environment will be losing us money," said chief financial officer Ewen Stevenson.

It also plans to reduce costs to $31bn (£24bn) by 2022, well below last year's operating expenses of $42.3bn (£32bn).

"This latest guidance, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, assumes that the likelihood of further significant deterioration in the current economic outlook is low," the bank added.

"Based on our results for 2020 and our forecasts for 2021, the board will consider whether to pay a conservative dividend for 2020. Any such dividend would be dependent on the economic outlook in early 2021, and be subject to regulatory consultation."

INTEREST RATE, POLITICAL RISKS REMAIN

HSBC in June resumed plans to cut around 35,000 jobs it had paused after the coronavirus outbreak.

Hargreaves Lansdown analyst Nicholas Hyett said the flattening out of bad loan provisions "stands out to us as particularly notable".

"While we suspect high levels of government support in the UK and internationally are playing an important role in keeping defaults down for now, the bank also thinks the longer term economic outlook has improved. Interest rate pressure is here to stay though, and all things being equal that will hold back revenue growth," he said.

However, HSBC’s management think they have some self-help measures to hand to keep the bottom line moving forwards even if conditions remain tough."

Hyett said if the bank could navigate its transition successfully it "should generate attractive returns and we’d expect a large portion of those profits to come back to shareholders as dividends. Exposure to high growth markets in Asia could keep the bank ticking over for decades".

"However, challenges remain, and on the dividend in particular we think any payment at the end of this year will be more nominal than substantial. HSBC may be a in a better place than some UK rivals longer term, but it’s not one to bank on just yet.”

Richard Hunter, head of markets, at interactive investor, said tensions between the US and China and unrest around Hong Kong would provide headwinds for the bank.

"This is quite apart from the report last month alleging illicit activity and the possibility of HSBC being added to a Chinese list of firms deemed to be a threat to national security. Stalling negotiations in the UK/EU debate also cast a shadow."

"The warm welcome to this quarterly update is something of a relief rally. Prior to today’s spike, the shares had lost 48% over the last year, as compared to a decline of 21% for the wider FTSE100."

Hunter added that the current-year share price decline of 46% underlined "how much ground the bank needs to make up".

"The market consensus of the shares as a sell may yet remain intact until such time as any improvement can be seen to be an established trend rather than a blip,” he said.