HSBC Beats 2Q17 View, Announces $2bn Share Buyback

HSBC Beats 2Q17 View, Announces $2bn Share Buyback
August 22, 2017

Europe’s biggest bank HSBC Holdings Plc (NYSE: HSBC) reported better than anticipated fiscal 2017 second-quarter results on the last day of July. However, the stock has lost about 5% so far to trade at about $47 levels. The share repurchase program announced by the bank was at the lower end of analysts’ forecasts. That turned the market’s sentiment bearish towards the stock. As discussed below, the bank performed well in the quarter, and so a recovery in the stock price can be expected.

During the second-quarter of 2017, the bank’s profit rose to $3.9 billion, from $2.5 billion in the corresponding quarter of 2016. Pre-tax profit increased 13% y-o-y to $6 billion and exceeded Bloomberg analysts’ estimates of $5.50 billion.

For the six-month period ended June 2017, HSBC reported pre-tax profit of $10.24 billion, up 5% on y-o-y basis, and above the Consensus estimates of $9.5 billion.

All the three major business segments – Retail Banking & Wealth Management, Commercial Banking, Global Banking and Markets – recorded an earnings growth of more than 15% y-o-y in the first-half of the year. In particular, Global Banking and Markets segment, which includes investment banking business, recorded a 33% jump in earnings to $3.40 billion.

During 2Q17, HSBC took a provision of $865 million related to the ongoing inquiries into alleged manipulation of foreign currency markets. Additionally, the bank also took a charge of $89 million for the PPI (Payment Protection Insurance) scandal. Almost all the major banks in the UK were penalised by the regulators after they found the complex investment vehicle unsuitable for several customers taking loans.

At the end of second-quarter, HSBC’s CET1 ratio was 14.7%, up from 14.3% at the end of the March quarter, and above the target level of 12% to 13%.

As the capital base has increased considerably, the bank announced a $2 billion share repurchase program. Last year, HSBC had spent about $2.5 billion on share repurchase. In the first-half of 2017, the bank disappointed investors by allocating only $1 billion for the share repurchase program. Now, the market had expected HSBC to set aside $1.5 billion to $4 billion for share repurchases. Since the bank’s allocation was near the lower end of analysts’ expectations, the market punished the stock.

However, it should be noted that the bank has paid more in dividends than any other US or European bank in the last few years. HSBC has paid dividends to the tune of $10.1 billion, $10 billion and $9.6 billion in 2016, 2015, and 2014, respectively. Additionally, the bank has returned $3.5 billion to shareholders through its share repurchase program. Thus, impressive second-quarter results, strong capital ratio, regular dividends, and repurchase program is expected to bring in value buying at the current levels.

Technically, the momentum indicator has made a positive divergence with price. Likewise, the stochastic RSI is in the oversold region. Thus, we can expect buying to come in at these levels.

HSBC - Technical Analysis - 22nd August 2017

From one of our binary brokers, we wish to purchase a high option or its equivalent to benefit from the impending rise of the stock. If a contract expiring on or around August 29th is available, then the entry would be made when the stock trades near $47 in the US market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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