Photographer: Lam Yik Fei/Bloomberg

HSBC Seen Poised for More Share Buybacks After Stock Rallies

  • Analysts at UBS predict $3 billion in buybacks this year
  • Europe’s biggest bank reports fourth-quarter earnings Feb. 21

HSBC Holdings Plc investors will be looking for indications that the bank will follow through on its plan to return more capital when it announces fourth-quarter results this week, after a $2.5 billion stock buyback and a slumping pound lifted shares in 2016.

The stock has surged 56 percent since the Brexit vote on June 23, the most of any major European bank, rising to 707.5 pence, the highest since September 2013. Investors will also be focused on whether the bank can boost revenue faster than costs for a second straight quarter, and whether HSBC will follow U.S. rivals in posting a sharp uptick in fixed-income trading revenue.

“Key issues on results day are likely to be on management commentary on the outlook and sensitivity of interest rates, as well as questions on the potential for further dividends and buybacks,” David Lock, an analyst at Deutsche Bank AG with a hold rating on the company, wrote in a Feb. 16 report, saying he expected the bank to repurchase another $2.5 billion of stock in 2017.

One area where investors are unlikely to receive clarity is the naming of a successor to Chairman Douglas Flint, 61, who along with Chief Executive Officer Stuart Gulliver, 57, are the longest-serving duo at a major European bank. HSBC said in March it will nominate a replacement for Flint in 2017, but the board is not preparing an announcement alongside the full-year results on Feb. 21, according to three people with knowledge of the plans, who asked not to be identified because the succession process is confidential.

ANALYST COMMENTARY

  • Credit Suisse (Claire Kane), neutral rating
    • Pay attention to HSBC’s sensitivity to interest rates, which investors increasingly believe is greater than disclosed in the reported accounts
    • Look for details on the next buyback program; canceling the scrip dividend would be taken positively
  • Deutsche Bank (David Lock), hold rating
    • 2017 cost outlook will be in focus; HSBC’s Finance Director has said it faced “significant inflationary pressures”
    • HSBC will probably need to restructure its European business due to Brexit, which may result in one-time costs and separate European and U.K. entities
  • Investec (Ian Gordon), sell rating
    • Sharp compression in net interest margin and broad absence of loan growth over the past decade among key operational challenges
    • London-traded stock vulnerable to share price decline if GBP/USD recovers during 2017 as expected; HSBC to underperform U.K. banks this year
  • UBS (Jason Napier), neutral rating
    • Sees further $3 billion buyback in 2017, funded by capital repatriation from the US
    • Bank to focus on more rapid balance sheet growth after that, reducing dividend payout ratio

4Q AVERAGE ESTIMATES

  • Bloomberg News-compiled estimates, based on average of six analysts:
    • Adjusted pretax profit $3.78 billion
    • Total income $12.4 billion
    • Impairments $891 million
  • Broker estimates compiled by HSBC:
    • Adjusted pretax profit $3.54 billion (range $2.78 billion to $3.95 billion)
    • Pretax profit $2.71 billion (range $2.06 billion to $3.95 billion)
    • Loan impairment charges $911 million (range $703 million to $1.13 billion)

TIMING:

  • HSBC reports around noon Hong Kong time on Tuesday (4am London)
  • Conference call at 3:30pm HKT (7:30am London)
    • Call number +44 1452 584 928, password HSBC

— With assistance by Sofia Horta E Costa, and Alfred Liu

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