HSBC frets on UK outlook but banks 240% rise in profits

Europe’s biggest bank has credited rising interest rates for a 240% lift to its latest quarterly profits but expressed worries about the UK’s economic outlook.

HSBC, which is London based and listed but largely Asia-focused, said that pre-tax profits for its July to September third quarter came in at $7.7bn (£6.4bn).

Higher interest rates, on the back of central bank hikes to tackle stubborn inflation, boosted the bank’s profitability and helped it fund a fresh $3bn share buyback.

HSBC also revealed a third interim dividend payout this year of 10 cents per share, bringing the total to 30 cents per share in the year to date.

But a 0.5% share price gain when the London market opened was tempered by several factors.

Analysts suggested there was a reaction to the profit number missing expectations.

It was partly explained by a rise in costs for new technology but also a $500m impairment charge relating to the bank’s exposure to China’s troubled commercial real estate sector.

It was announced on Monday that the chief problem, China Evergrande, is facing a winding-up petition in a Hong Kong court in December over its debt mountain of more than $300bn.

Another worry for HSBC investors is a decline in the bank’s net interest margin – a key measure of lending profitability.

That fell by two basis points compared to the previous quarter to 1.70%, reflecting an increase in customers migrating their deposits to term products, particularly in Asia, HSBC explained.

“We continue to monitor risks related to our exposures in mainland China’s commercial real estate sector closely, and there remains a degree of uncertainty in the forward economic outlook, particularly in the UK,” the company said.

Its latest results were published just days before the Bank of England is due to reveal its latest interest rate decision.

Financial markets widely expect no change from the 5.25% figure that policymakers stuck with at their last meeting back in September.

The forecasts are largely based on the fact that inflationary pressures have continued to ease while the economy continues to flatline.