HSBC Holdings reported a surprise 74 percent rise in third quarter profit as it shrugged off concerns about pandemic-related bad loans and property problems in its key market of China, allowing it to announce a share buyback of $2 billion.
The British lender reversed potential credit losses it had previously expected due to pandemic-induced defaults, with CFO Ewen Stevenson telling Reuters on Monday that the worst of that impact is likely behind HSBC.
"You should also look at the buyback as a measure of the confidence that we have at the moment that we are not unduly concerned about our exposures in China," he said.
The bank said in its results presentation that it had $19.6 billion in lending to China's property sector, where China Evergrande Group is grappling with a $300 billion debt pile, stoking fears of further defaults and contagion risks.
HSBC CEO Noel Quinn, who was confirmed in the role in 2020 just as the pandemic-induced economic crisis began, is betting on Asia to drive growth, by moving global executives there and ploughing billions into the lucrative wealth business.
The bank could spend up to $1.5 billion more on acquisitions in that space after it bought insurer AXA's Singapore assets for $575 million in August, CFO Stevenson said.
"While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us," Quinn said in the results statement.
HSBC posted pretax profit of $5.4 billion for the quarter to September, versus $3.1 billion a year earlier and the $3.78 billion average estimate of 14 analysts compiled by HSBC.
The bank's Hong Kong-listed shares rose as much as 1.8 percent to the highest in four months. Its London-listed shares have gained 15 percent so far this year versus a 5 percent rise in shares of Asia-focussed rival Standard Chartered, while Barclays is up 35% and U.S.-listed Citi has put on 16 percent.
HSBC was ranked Europe's biggest lender by assets until last year, when French rival BNP Paribas claimed the title with $3 trillion in assets.
Despite the overall positive results, HSBC said its cost projections for 2022 had increased to $32 billion from $31 billion, due to global inflation pressures which would push up its $19 billion wage bill.
Major companies worldwide have in recent weeks warned of the impact on their businesses from rising costs driven by spiralling energy prices and supply chain disruption.
"A little bit of inflation is good for us as it should drive policy rates higher," Stevenson said.
"However, we have a cost base of $32 billion of which $19 billion is compensation... so it doesn't take much (to push up costs), 2 or 3 percent inflation on the cost base is $400 to $600 million of additional costs," he said.
Set against those concerns, HSBC released $700 million in cash it had put aside in case pandemic-related bad loans spiked, as opposed to the same time a year earlier when it took an $800 million charge in expectation of such soured debts.
Another headache for HSBC compared to its peers is its investment banking performance, where rivals such as Citigroup are riding a M&A boom.
HSBC's investment bank however saw income fall this year as it paid the price for its bias towards debt markets, which have been patchy amid low interest rates that crimped trading, while rivals' equities and merger-focused businesses have thrived.
It is the second big British lender to post strong results for the quarter, after Barclays reported on Thursday it had doubled profits on the back of a strong performance from its investment bank advisory business.