HSBC Surges After U.S. Stress-Test Pass Boosts Payout Prospects

  • Bank may buy back $3.2 billion of stock, KBW analysts estimate
  • Shares trading near a four-year high in London after 4.9% jump

Fed Stress Test Shows U.S. Gap With European Banks

HSBC Holdings Plc surged to trade near a four-year high after the bank’s North American unit passed the Federal Reserve’s stress test, clearing the way for more than $3 billion of capital to be returned to shareholders, analysts estimate.

The Fed told Europe’s largest bank it has more than enough capital, sending the shares up as much as 4.9 percent, the most since November, on speculation that the bank will increase its buyback program. HSBC has already bought $3.5 billion of stock since August.

“We estimate there remains a further $7 billion of excess capital which can be repatriated to the group” from the U.S. division, Richard Smith and Edward Firth, analysts at Keefe Bruyette & Woods Inc., said in a note Thursday. “It implies a further $3.2 billion of capital returns planned over the coming years.”

Every lender passed annual stress tests for the first time since the Fed began the reviews in the wake of the 2008 financial crisis. The clean bill of health is a boost for the management duo of Chairman Douglas Flint and Chief Executive Officer Stuart Gulliver, who have presided over five years of declining annual revenue as well as a string of misconduct scandals.

HSBC rose 4.5 percent to 717.3 pence at 10:06 a.m. in London, extending the bank’s rally to 58 percent in the past 12 months and outperforming the Bloomberg European Banks index by about 9 percentage points. The shares touched the highest level since August 2013.

The surge is also supported by comments from central bankers indicating that interest rates may soon rise again, fueling expectations that lenders could earn more on loans.

HSBC made $2.5 billion of stock repurchases last year using capital that was freed up from the sale of its Brazil unit, adding another $1 billion in February this year. Chief Financial Officer Iain Mackay has previously said as much as $8 billion could be repatriated from its U.S. operations and a portion of this would be allocated to buybacks.

“We continue to expect it will take some time to repatriate all the excess capital trapped in the U.S. but this represents an important step,” KBW said. “With a dividend yield of nearly 6 percent and further buyback potential the shares continue to be well supported.”

— With assistance by Emily Cadman

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