HSBC Misses Q3 Profit Estimates Due to China's Real Estate Sector Woes

HSBC, Hong Kong's largest currency-issuing bank, has reported a third-quarter profit that fell significantly short of expectations due to increased provisions for bad debt associated with China's real estate sector. The bank's net profit for the three months ending in September saw a 180% increase to $5.6 billion, up from $2 billion during the same period the previous year. However, this figure fell short of the anticipated $6.16 billion net profit predicted by analysts.

HSBC also announced a new share buy-back program amounting to $3 billion, set to commence soon, in addition to three quarterly dividends totaling $0.30 per share.

CEO Noel Quinn noted, "We have had three consecutive quarters of strong financial performance and are on track to achieve our mid-teens return on tangible equity target for 2023." He added that the bank experienced substantial growth across all of its businesses and regions, partly supported by the prevailing interest rate environment.

The bank's earnings included credit impairments of $1.1 billion, with $500 million related to potential problematic loans in its Chinese real estate portfolio. HSBC's total exposure to China's commercial real estate stood at $13.6 billion at the end of September, marking a $600 million decrease from the previous year after a $7.7 billion write-down.

The profit increase was partially attributed to a one-off $2.3 billion impairment in the third quarter of the previous year, linked to the planned sale of the bank's retail banking operations in France. In the first quarter of this year, provisions of $2.1 billion were reversed as the completion of the transaction became less certain.

HSBC's earnings report came in the wake of a challenging economic environment in Hong Kong, its largest market, and in Britain, its second-largest market. Factors such as a sluggish property market in Hong Kong and shrinking exports have led to a revision of the government's full-year GDP forecast for 2023 to 4-5%, down from the previous estimate of 3.5-5.5%.

Overall, the bank's Asian business reported a 20% increase in pre-tax profit for the third quarter, amounting to $4.08 billion, compared to $3.5 billion a year earlier. Revenues also saw a 40% rise to $16.16 billion, while net interest income increased by 16% to $9.25 billion. The net interest margin (NIM), a crucial profitability measure, improved by 19 basis points to 1.7%.

In terms of its business segments, pre-tax profit in the global banking and markets division dropped by 7% to $1.3 billion, while the commercial segment reported a pre-tax profit of $2.8 billion. Meanwhile, pre-tax profit in the wealth and personal banking segment surged 25 times to $2.8 billion.

HSBC's results follow a trend in the banking industry, with other financial institutions reporting earnings impacted by high impairment charges related to their exposure to China's property sector.

By fLEXI tEAM