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HSBC third quarter profit up by 28% thanks to Mena income and cost cuts

October 30, 2018

Bank reported third quarter pre-tax profit of $5.9bn, with Mena accounting for 5.46 per cent of overall income

HSBC posted a pre-tax profit of the $322 million for the third quarter from its Middle East and North Africa, helping Europe’s biggest bank by assets to record a 28 per cent jump in total net income, beating analysts’ estimates.

Pre-tax net profit for the September quarter climbed to $5.9 billion (Dh21.67bn), up from $4.6bn in the same period a year earlier, HSBC said in a statement on Monday. The profit was higher than the $5.6bn average of analysts' estimates compiled by the bank.

HSBC’s Hong Kong shares rose as much as 5.6 per cent after the announcement. Its stock in London climbed 5.4 per cent in early trading.

Mena profit accounted for 5.46 per cent of HSBC’s total profit, with global banking and markets operations contributing $175m of income and corporate and retail banking adding $101m and $47m respectively. The Mena commercial banking lost $2m at the end of the third quarter on the back of credit losses, according to the earnings data.

“These are encouraging results that demonstrate the revenue potential of HSBC. We are doing what we said we would – delivering growth from areas of strength, and investing in the business while keeping a strong grip on costs,” John Flint, HSBC’s group chief executive, said.

“We remain committed to growing profits, generating value for shareholders and improving the service we offer our customers around the world.”

HSBC, which heavily relies on Asian markets for growth, especially Hong Kong and China, has gone through a major restructuring after the global financial crisis. However, cost control has been an area of concern for Mr Flint who assumed his role in February.

Higher costs have overshadowed the bank’s profits in recent quarters. However, the lender on Monday said expenses fell 2.4 per cent from the preceding three months. Its revenue for three months to September 30 grew 6.3 per cent to $13.8bn from a year earlier.

The bank plans to spend as much as $17bn in three years on technology and in China.

“The key to satisfy the shareholders is to spend less and deliver higher growth numbers and in today’s earnings report, HSBC has nailed this. The bank’s biggest challenge was to tame its cost,” Naeem Aslam, chief market analyst at Think Markets UK, said in a note.

“The bank needs to continue to focus on its wealth management business in China and Hong Kong and we think that the new CEO, [Mr] Flint is determined to deliver on this.”

Asia will remain the key market for HSBC and the lender will need to spend on technology, which would help it deliver on efficiency. The bank needs to boost its revenue by keep taping into retail clients. The bank’s deposit margin was boosted as a result of this and it is an encouraging sign for shareholders, Mr Aslam noted.

Reported pre-tax profit for the bank's Asia operations, which accounted for 75 per cent of the its overall profits in the third quarter, surged 10.7 per cent to $4.5bn.

The bank said loans and advances to customers increased by $8bn during third quarter. Excluding foreign currency translation differences, loans and advances grew by $14bn or 1 per cent from the second quarter of 2018, it said.

HSBC's common equity tier 1 ratio – a ratio usually referred to gauge a lender’s financial position – came in at 14.3 per cent at the end of the third quarter.

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