HSBC profit dented by $1.7bn loss from Brazil unit sale

A $1.7bn loss from the sale of its Brazilian unit dented earnings at HSBC, with the bank’s third-quarter profit falling 86 per cent year-on-year.

The $843m quarterly profit undershot analysts’ consensus expectations of $2.45bn for Europe’s largest bank, and down from $6.1bn in the same period a year ago.

For the first nine months of the year, HSBC on Monday reported pre-tax profit of $10.6bn, 46 per cent lower than the same period the year before. Revenues were also down in the third quarter at $9.5bn, a fall of $5.6bn compared with a year ago.

As well as the $1.7bn loss from the sale of its Brazilian business to Banco Bradesco, which was completed in July, HSBC blamed adverse foreign currency fluctuations for denting its quarterly profit. The bank cut its third interim dividend from $0.30 to $0.10.

On an adjusted basis – excluding one-off losses and currency fluctuations – profit rose 7 per cent to $5.6bn, beating analysts’ expectations.

HSBC continued to cut back on poorly performing assets in the third quarter, selling $900m in assets from its consumer and mortgage lending business in the US.

In August, the bank said it had received approval from US regulators to repatriate that capital to its parent company – a move HSBC said could lead to a “substantial” share buyback in 2017.

The bank also said it was 80 per cent of the way towards reaching its goal of cutting $280bn in risk-weighted assets from its balance sheet.

A $2.5bn share buyback plan announced in August was 59 per cent complete, HSBC said. The purchases of the shares, which were in part funded by the Brazil sale, would be completed late this year or early next.

HSBC shares in Hong Kong were up 1.74 per cent at HK$58.45 in early afternoon trading, slightly outperforming the Hang Seng index.

A new method of accounting for capital sent HSBC’s common equity tier one ratio – a closely watched measure of financial strength – to 13.9 per cent, up from 12.1 per cent at the end of June.

“This is another action forming part of our ongoing capital management of the group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buybacks, as appropriate,” said Stuart Gulliver, chief executive.

“It also provides us with a significant capacity to manage the continuing uncertain regulatory environment.”

Chirantan Barua, an analyst at Bernstein in London, said the move “should be enough [to] allow the bank to maintain the dividend next year out of capital even as earnings decline”.

It did not report its return on equity after scrapping its target of 10 per cent in August, citing an uncertain economic outlook.