HSBC Says Won’t Reach Target Return on Equity
World Economy

HSBC Says Won’t Reach Target Return on Equity

HSBC Holdings PLC said Wednesday that it will spend up to $2.5 billion in the second half of the year to buy back shares after the successful sale of its Brazil unit in July.
Earnings dropped amid “considerable uncertainty” in the first half of the year, said Chief Executive Stuart Gulliver. The British bank said Wednesday that its second-quarter net profit plunged 40% to $2.61 billion. Profit before tax dropped 45% to $3.61 billion in the quarter, Yahoo reported.
The share buyback will constitute about half of the capital freed up by the disposal of the Brazil unit, the bank said. Shares of the bank were up 1.7% on the Hong Kong stock exchange in recent afternoon trading.
In the first half of the year, the UK lender notched lower customer activity and more market volatility, particularly in Hong Kong. The bank’s share price has been battered on the Hong Kong stock exchange, dropping 30% from a year earlier.
The buyback comes as the British bank has faced concerns over its strategy in Asia and questions about the effects of the UK vote to leave the European Union. Demand for credit slowed due to concerns over the growth of the Chinese economy and the uncertainties surrounding the UK referendum, chairman Douglas Flint said Wednesday.
HSBC said Wednesday that it is no longer “achievable” to reach its target return on equity, a key profitability measure, of more than 10% by the end of 2017. The bank is jettisoning a timetable in light of low interest rates and the “current uncertain economic and geopolitical environment.”
Once a sprawling bank across 87 countries, HSBC has been exiting businesses and countries to improve profits and cope with tougher regulations since the financial crisis. Its main regions now are Asia, the UK and North America.
HSBC said Wednesday that while the bank is committed to its pivot to Asia, “the global slowdown has delayed the process of redistributing” capital in the region.
Earlier this year Flint defended the bank’s investment in the Pearl River Delta area of China in particular, saying it was a “huge opportunity” over the medium and longer term.
The bank is “pacing the rate of investment” both in terms of allocating capital to lend, as well as expanding the number of employees and branches in the Pearl River Delta, said Iain Mackay, the bank’s group finance director, Wednesday.

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