UPDATE 4-HSBC saves real estate worries in China with 74% profit jump and $ 2 billion buyout


* Third quarter profit reaches $ 5.4 billion thanks to better lending outlook

* Costs are expected to reach $ 32 billion as inflation increases

* $ 2 billion share buyback to begin shortly

* HSBC shares in Hong Kong rise up to 1.8% to reach their highest level in 4 months (redesigns, adds CFO comments)

By Anshuman Daga and Lawrence White

SINGAPORE / LONDON, Oct. 25 (Reuters) – HSBC Holdings announced a surprising 74% increase in third-quarter profits while ignoring concerns over bad debt and real estate issues linked to the pandemic in its key market of the China, allowing it to announce a share buyback of $ 2 billion. The UK lender has written off potential credit losses it previously expected due to pandemic-induced defaults, with CFO Ewen Stevenson telling Reuters on Monday that the worst of the impact was likely behind HSBC.

“You should also view the buyout as a measure of the confidence 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 loans to the Chinese real estate sector, where China Evergrande Group is grappling with $ 300 billion in debt, fueling fears of further defaults from payment and contagion risk.

HSBC CEO Noel Quinn, who was confirmed to his post in 2020 just at the onset of the pandemic-induced economic crisis, is betting on Asia to spur growth, moving world leaders there and injecting billions in the lucrative wealth sector.

The bank could spend as much as $ 1.5 billion more on acquisitions in this space after buying the assets of insurer AXA in Singapore for $ 575 million in August, CFO Stevenson said.

“While we maintain a cautious view of the external risk environment, we believe the lows of recent quarters are behind us,” Quinn said in the earnings release.

HSBC posted pre-tax profit of $ 5.4 billion for the quarter through September, down from $ 3.1 billion a year earlier and the average estimate of $ 3.78 billion from 14 analysts compiled by HSBC.

The bank’s Hong Kong-listed shares rose 1.8% to their highest level in four months. Its London-listed shares have gained 15% so far this year against a 5% rise in shares of Asian rival Standard Chartered, while Barclays is up 35% and US-listed Citi has took 16%.

HSBC was ranked Europe’s largest lender in terms of assets until last year, when French rival BNP Paribas claimed the title with $ 3 trillion in assets.

FEAR OF INFLATION

Despite the overall positive results, HSBC said its cost forecast for 2022 had fallen from $ 31 billion to $ 32 billion, due to global inflationary pressures that would increase its payroll by $ 19 billion.

In recent weeks, large companies around the world have warned of the impact on their businesses of rising costs due to soaring energy prices and supply chain disruption.

“A little inflation is good for us because it should push up policy rates,” Stevenson said.

“However, we have a cost base of $ 32 billion of which $ 19 billion is compensation … so it doesn’t take much (to drive up costs), 2 or 3% cost base inflation is an additional $ 400-600 million in costs, ”he said.

Faced with these concerns, HSBC released $ 700 million in cash that it had set aside in case the bad debts linked to the pandemic increased, as opposed to the same period a year earlier when it had taken $ 800 million. of dollars in anticipation of these sour debts.

In fact, economic conditions have improved as loans have performed better than expected, the bank said.

Another headache for HSBC relative to its peers is its performance in investment banking, where competitors such as Citigroup are profiting from a M&A boom https://www.reuters.com/world/us/ us-banks-beat-profit-estimates-economic- rebond-red-hot-markets-2021-10-14 to record profits.

HSBC’s investment bank, however, saw its revenues fall this year as it paid the price for its preference for debt markets, which have been uneven amid low interest rates that have crippled trade, while the shares of its competitors and merger-oriented companies have flourished.

It is the second major UK lender to post strong results for the quarter, after Barclays said Thursday it doubled profits on a strong performance in its investment banking advisory business. (Reporting by Anshuman Daga in Singapore and Lawrence White in London; editing by Ana Nicolaci da Costa)

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