FTSE 100: HSBC sees profits triple with help from Silicon Valley Bank deal

A person walks past an HSBC branch, in London, Monday, March 13, 2023. Governments in the UK and U.S. took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank was shut down. The UK Treasury and the Bank of England “facilitated the sale″ of Silicon Valley Bank UK to HSBC, ensuring the security of 6.7 billion pounds ($8.1 billion) of deposits. (AP Photo/Alberto Pezzali)
HSBC declares first quarterly dividend since 2019. Photo: Alberto Pezzali/AP

HSBC (HSBA.L) reported a sharp rise in profit in the first quarter, driven by bumper interest income and its purchase of collapsed Silicon Valley Bank's British business (SVB UK).

Europe's biggest bank posted a pre-tax profit of $12.9bn (£10.3bn) for the three months to the end of March — more than three times the amount it made for the same time last year.

Profit growth was driven by central banks hiking base rates in response to soaring inflation, thereby boosting HSBC's net interest income.

HSBC also credited a "provisional gain" of $1.5bn (£1.2bn) on the acquisition, for £1, of SVB UK in March when its US parent collapsed.

"We remain focused on continuing to improve our performance and maintaining tight cost discipline, but we also saw an opportunity to invest in SVB UK to accelerate our growth plans," HSBC chief executive Noel Quinn said.

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The bank also got a boost from the reversal of its plan to write-off $2.1bn due to the sale of its French business, as that deal may no longer be completed.

The bank is rewarding shareholders with a new cycle of buybacks of up to $2bn and said a dividend of $0.10 per share would be paid.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: “Investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter.”

“Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe had been the lack of returns given the strong capital position.”

The bank’s revenues rose 64% to $20.2bn, fuelled by the higher interest rates. Its net interest margin — the difference between the interest it receives from making loans and the rate it pays out to depositors such as savings account holders — rose to 1.69%.

AJ Bell investment director Russ Mould said: “HSBC is always a bit of an outlier in the UK banks sector because, while it has a UK high street presence, its core focus is increasingly Asia.

“It’s true a trebling of its pre-tax profit was flattered by accounting moves around the sale of its French retail banking network, which now looks like being called off, and a provisional gain from its acquisition of the UK arm of Silicon Valley Bank, though the latter does suggest this deal may prove something of a steal for HSBC.”

In recent months, pressure has mounted on HSBC from its biggest shareholder, Chinese insurance giant Ping An (2318.HK).

Ping An has called for HSBC to spin off its Asian operation to increase the amount investors make out of the business there.

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The lender is set to face shareholders at its annual general meeting in the UK on Friday.

Mould added: “Chinese insurer Ping An is not dialling back its criticism of the lender. As its largest shareholder this view carries weight and the push for HSBC to spin-off its Asian operations from the rest of the business isn’t going away.

“HSBC CEO Noel Quinn points to the strong quarterly results as evidence the existing strategy is working, but Ping An’s argument is likely to be that one swallow does not make a summer and this Friday’s AGM looks set to be a testy affair.”

Watch: Higher interest rates help HSBC triple profits and resume quarterly dividends

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