Financial Performance

HSBC Beats Estimates, May Resume Dividend

“These were promising results against a backdrop of the continuing impacts of COVID-19 on the global economy."
Matthew HellerOctober 27, 2020

HSBC shares jumped on Tuesday after Europe’s largest bank by assets reported better-than-expected quarterly earnings and signaled it may resume dividend payouts next year.

For the third quarter, HSBC’s revenue fell 11% to $11.9 billion while pretax profit slid 35% to $3.1 billion. But analysts had forecast a profit of $2.07 billion.

Reduced interest revenue was offset somewhat by lower credit losses than in the first half of the year, strong results from life insurance, and a pickup in trading.

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“These were promising results against a backdrop of the continuing impacts of COVID-19 on the global economy,” HSBC CEO Noel Quinn. “I’m pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment.”

According to Quinn, the bank is “moving our focus from interest-rate sensitive business lines towards fee-generating businesses” and will also further reduce operating costs.

In Hong Kong trading Tuesday, HSBC shares closed at 4.81% higher after earlier climbing as much as 7%.

As Reuters reports, HSBC “has long touted its ability to generate interest income from its more than $1.5 trillion in customer deposits. But with interest rates worldwide now rock bottom and even turning negative, the bank is struggling to charge more for loans to borrowers than it pays out to depositors and it warned net interest income would remain under pressure.”

The bank’s net interest margin fell to 1.20% in the third quarter, down 36 basis points from a year ago, but CFO Ewen Stevenson told CNBC that the latest results suggest a bottoming of the credit cycle and HSBC is “putting in place all of the building blocks we need to resume dividends.”

Like all U.K.-regulated banks, it was forced by British officials to suspend its payout this year.

“With a solid 15.6% core equity ratio at the end of the third quarter, HSBC hopes to restart dividends next year, but payouts will be ‘conservative’ and subject to U.K. regulators’ approval,” The Wall Street Journal said.

(Photo by Miguel Candela/SOPA Images/LightRocket via Getty Images)