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HSBC Holdings has exceeded market expectations with a robust third-quarter performance, announcing a $3 billion share buyback program as newly appointed CEO Georges Elhedery sets the stage for a transformative reorganization of the 159-year-old banking giant.
The London-headquartered bank reported pre-tax profits of $8.5 billion for the third quarter, marking a 10% increase from the previous year and significantly outperforming analyst forecasts of $7.6 billion. This strong showing was primarily driven by exceptional performance in the bank's wealth management division and wholesale banking operations.
Commenting on the results, CEO Georges Elhedery, who assumed leadership last month, stated, "We delivered another good quarter, which shows that our strategy is working." The bank's performance has enabled it to announce a $3 billion share buyback program, complemented by a $1.8 billion dividend distribution to shareholders.
However, the bank faces headwinds in its core lending business. Net interest income declined to $7.6 billion from $9.2 billion year-over-year, falling short of the $8.2 billion analyst consensus. The net interest margin contracted to 1.46% from 1.7%, reflecting broader pressures in the banking sector.
In a significant strategic shift, Elhedery announced plans to restructure HSBC's operations into eastern and western markets. This reorganization includes merging the global commercial and investment banking divisions, a move that financial analysts suggest could generate cost savings of up to $300 million, according to Financial Times reports.
The bank's wealth management division emerged as a particular bright spot, with fee income surging 32% in the quarter. HSBC's Asian operations continued to show strength, adding 243,000 new customers in Hong Kong alone. However, the bank has set aside $1 billion for potential loan losses, exceeding analyst expectations of $859 million, primarily due to concerns about commercial real estate exposure in Hong Kong and mainland China.
RBC Capital Markets analyst Benjamin Toms offered a cautionary perspective: "We think the bank's earnings momentum has come to an end," highlighting the challenges HSBC faces from falling interest rates in key markets.
This restructuring follows former CEO Noel Quinn's 2020 initiative, which targeted 35,000 job reductions by 2022. HSBC, which currently employs approximately 213,978 staff globally, including 40,000 in the UK, is expected to provide more detailed plans during its full-year results presentation in February.
The bank's shares responded positively to the news, rising 2.4% in Hong Kong trading, though year-to-date performance in London shows a 9% increase, trailing behind its UK banking peers. Further details about the reorganization's impact on workforce and operations are anticipated in the coming months.
