HSBC’s boss is leaving on a high – but his successor faces tougher times

Timing is everything for a chief executive – and Noel Quinn, the outgoing CEO at HSBC, looks to have got his right.

The Brummie, who steps down in September after five years in the job, unveiled a crowd-pleasing set of results today ahead of bowing out.

Analysts, though, fret that this may be as good as it gets – for now – for Europe’s biggest bank.

HSBC Holdings reported a pre-tax profit of $21.6bn for the first six months of the year. That was down by 0.4% on the same period last year but ahead of the $20.5bn that had been expected.

But what really excited investors – and sent shares of the FTSE-100’s third largest company up by nearly 4% – was news of a $3bn share buy-back. That comes on top of a $5bn buy-back announced earlier this year.

It means that, during Mr Quinn’s time at the helm, HSBC will have bought back $18bn worth of its shares and doled out $36bn in dividends.

The bank also announced that Jon Bingham, a former partner at KPMG, will become its interim chief financial officer after the current incumbent, Georges Elhedery, steps up to replace Mr Quinn.

Mr Bingham will be HSBC’s fourth CFO in six years.

As ever with HSBC, which makes the bulk of its profits in Hong Kong and China, there are lots of moving parts.

The net interest margin – the difference between what a bank pays depositors and charges borrowers – came in at 1.62% for the three months to the end of June – down from 1.63% in the first three months of this year and down from 1.72% during the comparable three months in 2023.

That reflects, as other banks have noted, the growing tendency of savers to shop around in search of the most competitive rates.

Diversification paying dividends

HSBC, though, derives only part of its revenues from net interest income and it benefited during the period from this diversification.

Revenue from the bank’s wealth division, for example, rose by 12% to $4.3bn, thanks to a big rise in fee income, while its wholesale transaction banking revenue rose by 4% to $1.1bn.

Mr Quinn told CNBC: “The stand-out performance, I think, is our ability to continue to grow revenue from alternative sources other than interest income.”

HSBC’s return on tangible equity (RoTE – a measure of a company’s ability to generate profits) came in at 17.0% for the half-year, excluding one-off items, which was down from 18.5% in the same period in 2023.

The bank also for the first time said it expects to achieve a RoTE in the mid-teens for next year due to what Mr Quinn said was management’s confidence in the “strong performance of the business”.

Chinese exposure

One stand-out in the numbers was how well HSBC’s UK business – which last year snapped up the UK arm of failed lender Silicon Valley Bank (SVB) – is faring, partly because the Bank of England had kept interest rates higher for longer than expected.

Mr Quinn added: “If I look at the UK, we reported profit before tax up by around about 11%, if you exclude the gain on the acquisition of SVB – that’s a strong performance in the UK economy… we’re seeing a resilient performance from our businesses.

“We saw growth in our mortgage book in the UK.”

One major cause of relief will have been the fact that, despite its exposure to mainland China, HSBC does not appear to have been hit by problems in the country’s commercial property sector.

Impairment charges, reflecting loans the bank does not expect to be repaid in full, came in at just $300million for the three months to the end of June – down 67% on the same period last year.

Another interesting detail – which may catch the eye of Rachel Reeves, the new Chancellor, as she prepares to abolish “non-dom” status in the UK at a time when countries like Italy are trying hard to attract the world’s wealthy – concerned the extent to which people are criss-crossing the globe.

Mr Quinn noted: “Increasing global mobility amongst retail customers is also driving demand for innovative cross-border banking solutions. This helped us to grow international customers within Wealth and Personal Banking by 11%, bringing the total to seven million customers.

“Revenue from these customers also grew by 6% in the first half. We believe that there is still significant untapped potential amongst international wholesale and retail customers.”

Reached the peak?

So why is there a sense that Mr Quinn, who was interim chief executive for eight months before getting the job on a permanent basis, has timed his exit well?

Partly, it is because interest rates in many of HSBC’s key markets around the world are expected to begin falling in coming months, eating into the bank’s net interest income.

Benjamin Toms, analyst at broker RBC Capital Markets, told clients today: “Following strong performance in 2023, we think the bank’s earnings momentum has come to an end.”

Meanwhile, despite comments today from Mr Elhedery that “the big challenges are behind us” in Hong Kong and China, there is still unease about the outlook for both.

Edward Firth, an analyst at investment bank Keefe, Bruyette & Woods, told clients today that HSBC’s cash returns did not appear sustainable in the longer term: “Considerable uncertainty remains over the outlook for their core Hong Kong market.”

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As Mr Quinn bows out, after 37 years with HSBC, it would be grudging not to recognise the changes he has brought about at this super tanker of a bank.

Pushed, no doubt, by HSBC’s hard-driving chairman, Sir Mark Tucker, he has sought to step up the bank’s exposure to China while navigating it through the pandemic.

A long-running campaign by HSBC’s biggest shareholder, the Chinese insurer Ping An, for the bank to break itself up was a huge distraction to management.

And he also had to unwind the flag-planting of previous management regimes by offloading unwanted businesses in France, Argentina, Canada and the United States.

That is not a bad platform to hand over to Mr Elhedery.